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Creative destruction


A model of economic growth driven by qualityimproving innovations that make old technologies or products obsolete. Current innovations exert a positive extemality for future research and development zmd a negative externality on incumbent producers. This may create disincentives to adopt new technologies and new institutions, which, in particular, can explain why some societies grow more rapidly than others. According to this paradigm, because of vested interests the producers and researchers who specialize in old technologies may create obstacles for the arrival of new innovations that might destroy their rent. The struggle between the innovative forces and the vested interests of those working with old technologies results in cycles with alternating periods of stagnation and innovative phases. The notion of growth through creative destruction was first introduced by Schumpeter in the 1930s and was extensively developed in the endogenous growth literature in the 1990s.


Reference: Oxford Press Dictonary of Economics, 5th edt.