Traditional growth theory emphasizes the incentives for capital accumulation rather than technological progress; innovation is treated as an exogenous process or a byproduct of investment in machinery and equipment. Grossman and Helpman develop a unique approach in which innovation is viewed as a deliberate outgrowth of investments in industrial research by forward-looking, profit-seeking agents. They also devote attention to the place of international trade in the growth process, including the transmission of innovations from the industrial economies to the LDCs.
Grossman and Helpman provide a useful overview of recent analyses of innovation and growth, enriching and expanding the available formal theory in a number of important ways. They develop straightforward theoretical models that treat innovation as the outgrowth of costly investments in industrial research. Such investments respond to profit opportunities, which reflect competitive conditions in national and international product markets. Since firms in different countries race to bring out new products, growth processes are linked by international technological competition.
An important aspect of Grossman and Helpman's study, even in relation to recent similar work on endogenous growth, is that they focus on the growth process of a country that operates in a global economy. They allow comparative advantage to be created endogenously in the industrial research laboratory but look at the dynamic determinants in the pattern of trade and the interactions between trade and growth. One chapter is devoted entirely to how economic integration affects a country's innovation and growth, while another studies the effects of national policies in an international environment. The final two chapters take up interaction between the processes of innovation in the industrialized North and imitation in the middle income South.
About the Authors
Gene M. Grossman is Jacob Viner Professor of International Economics and Director of the International Economics Section at Princeton University.
Elhanan Helpman is Professor of Economics at Harvard University, the Archie Sherman Chair Professor of International Economic Relations in the Eitan Berglas School of Economics at Tel-Aviv University, and a Fellow at the Canadian Institute for Advanced Research.
"A pathbreaking contribution by two of the smartest economists at the frontier of trade theory today."
—Jagdish Bhagwati, Columbia University
"More than two centuries after Adam Smith linked the extent the market to the wealth of nations, Gene Grossman and Elhanan Helpman have developed the kind of coherent theoretical framework that previous discussions of trade, growth, development, and innovation have lacked. Any economist who wants to work on these timeless (and timely) issues should study this book."
—Paul M. Romer, University California, Berkeley