Bisignano, Joseph --- "Searching for Schumpeter: the €nancial sector and economic growth in industrial countries" [2003] ELECD 25; in Tumpel-Gugerell, Gertrude; Mooslechner, Peter (eds), "Economic Convergence and Divergence in Europe" (Edward Elgar Publishing, 2003)

Book Title: Economic Convergence and Divergence in Europe

Editor(s): Tumpel-Gugerell, Gertrude; Mooslechner, Peter

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762416

Section: Chapter 19

Section Title: Searching for Schumpeter: the €nancial sector and economic growth in industrial countries

Author(s): Bisignano, Joseph

Number of pages: 31

Extract:

19. Searching for Schumpeter: the
financial sector and economic
growth in industrial countries
Joseph Bisignano

19.1. INTRODUCTION1

The study of economic growth is faced with a puzzle. A considerable
portion of the measured rate of growth of output per man-hour remains
unexplained. The textbook Solow (1956) model of economic growth, which
assumes constant returns to scale and perfect competition, describes the
growth rate of output per man-hour as dependent on the rate of growth of
the capital­output ratio and a residual, called the `Solow residual', or
multi-factor productivity growth.2 The puzzle is that for many countries the
residual appears to account for a large portion of the growth rate of output,
by as much as one-half in some cases. Indeed, economists have found that
the Solow residual leaves unexplained much of the cross-country variation
in economic growth (Easterly and Levine 2000). There is even evidence that
international differences in output per capita cannot be attributed to
differences in capital per person (King and Levine 1994). If capital accu-
mulation is not the engine of growth, what is?
In recent years there has been a revival of a branch of growth theory which
attempts to explain this residual and the growth puzzle, said to have origi-
nated with the Austrian economist Joseph Schumpeter (1911). Schumpeter
is currently associated to two thriving schools of economic research: endog-
enous growth theory, which considers how endogenous technical change and
innovation improve the quality of intermediate inputs, ...