When Management Theory Meets Economics: Towards Innovation and a Dynamic Growth Model of the Firm

Abstract

It has been argued that the dynamic effects of economic development through innovation are poorly understood by mainstream economic theory. This paper provides a conceptual and heuristic framework that is intended to move us closer to a dynamic growth model of the firm in a high-tech, knowledge based economy. A Cobb-Douglas production function with components of high tech capital and skills and with assumptions on the origin of innovative processes is being introduced to provide structure to the arguments. By drawing on the strategic groundwork of management theorists Moran and Ghoshal, it proceeds by applying an “appreciative” hypothesis of economic development (that is, a descriptive tool rather than a formal model) to test a Schumpeterian scenario of iterative creative destruction, thus answering the call for a dynamic Schumpeterian process. It also provides a response to the call for a broadened agenda to include a greater degree of attention to the selection [and de-selection] mechanism that influences the use of resources. These issues and others are investigated and some conjectures offered.

Keywords

Dynamic growth model firm-level strategy Schumpeterian creative destruction heuristic conceptualisation.

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