How do Innovations affect Economic Growth? - Some Different Approaches in Economics

This paper gives an overview of various approaches to how innovations affect economic growth: from standard macroeconomic equilibrium theory, growth accounting, new growth theories, catching-up theories, evolutionary theories based on theories of techno-economic paradigms and co-evolution to a systems of innovation approach. The paper focuses on approaches which sees growth as emanating from processes of interactive learning and on the relations between institutional and technological change. It is concluded that the main contribution from the systems of innovation approach to growth theory lies in its emphasis of the importance of institutions and institutional change and especially in the focus on interactions between institutional, organisational and technical change as the basic source of growth. Institutions and institutional change are at the very heart of the economic process and shape the whole process of growth. Without a thorough treatment of the institutional foundations of growth any growth theory is seriously flawed. For policy makers, who try to stimulate growth by supporting innovations, the focus should be on designing and implementing institutional changes which continuously supports technical and organisational learning and innovation, i.e. they should try to implement a more or less permanent process of institutional learning. Key-words: Growth Theory, Innovation, Institutional Change, National Systems of Innovation