Animal Spirits Meets Creative Destruction

P. Francois, H. Lloyd-Ellis

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We show how a Schumpeterian process of creative destruction can induce coordination in the timing of entrepreneurial activities across diverse sectors of the economy.Consequently, a multi-sector economy, in which sector-specific, productivity improvements are made by independent, profit-seeking entrepreneurs, can exhibit regular booms, slowdowns and downturns as an inherent part of the long-run growth process.The cyclical equilibrium that we study has a higher long-run growth rate but lower welfare than the corresponding acyclical one.We find that the cycles generated by our model share some features of actual business cycles, and that across cycling economies, a negative relationship emerges between volatility and growth.
Original languageEnglish
Place of PublicationTilburg
Number of pages46
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper


  • economic growth
  • entrepreneurship
  • innovation
  • business cycles


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