Schumpeterian growth theory

The Schumpeterian growth theory (or Schumpeterian growth paradigm) is one of the two branches of innovation-based theory (the other being product-variety model). The Schumpeterian growth theory was developed by French economist Philippe Aghion and Peter Howitt (1992). it grew out of modern industrial organization theory. It focuses on quality-improving innovations that render old products obsolete and hence involves the force that Austrian-American economist Joseph Schumpeter called creative destruction. The SGT models growth as resulting from innovations involving creative destruction.

Structure

The Schumpeterian growth theory is underlined by three main assumptions:

• Growth is primarily driven by technological innovations.
• Innovations are produced by entrepreneurs who seek monopoly rents from them.
• New technologies drive out old technologies.

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