Economic Dynamics

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The concept of economic dynamics denotes both the movement of an economic system (or parts of it) over time, and the body of theory that provides an analytical understanding of the former type of phenomenon. The analytical representation of dynamics, that is, the identification of features giving identity to any given economic system over time, is the critical link between economic history and the theory of economic dynamics. Thus it provides a connection between the two views of economic dynamics (Baranzini and Scazzieri 1990). The consideration of change as a regular feature of modern economic systems is at least as old as the early recognition of persistent forces or repeated once-for-all impulses as a normal factor shaping the structural evolution of an economic system over time (the contributions by Adam Smith, Thomas Robert Malthus (Essay on the Principle of Population) and David Ricardo are instances of the former approach; Malthus’s Principles of Political Economy are an instance of the latter approach). The recurrence of phases of contraction and expansion also received early recognition. The literature on economic crises provides an early example of the importance of the time-horizon in the analysis of economic dynamics (distinction among short, medium and long waves).

The concept of general economic crisis (Aftalion 1913; Robertson 1914; 1915; Tugan-Baranovsky 1894) is rooted in the idea that both contraction and expansion affect in due course the whole economic system, even if they would normally originate in particular subsystems (such as construction sector, machine tools sector or railways). Subsequent analysis often considered dynamic patterns relative to the whole economic system, thus overlooking a fine distinction of structural elements and dynamic factors. In this way, the attention paid to structural evolution (the change in the composition of aggregate magnitudes, or aggregate forces, as the economic system moves across time) receded into the background, and economic dynamics came to be considered as the analysis of long-run factors of change (such as capital accumulation, technical progress and population dynamics) and of their interaction. This type of investigation was often carried out on the assumption that long-run dynamic factors are constant and that the saving-investment equality is maintained throughout (steady growth under equilibrium assumption) (see Domar 1946; Harrod 1939; Kaldor 1957; Pasinetti 1962; Robinson 1956; Solow 1956; see also Baranzini 1991; Kregel 1973).

Recent work in the field of economic dynamics has pursued a number of distinct, yet interconnected, research lines. First, the interest in long-run dynamic factors has led to the consideration of learning and increasing returns as the most important endogenous phenomenon influencing economic evolution (Aghion and Howitt 1992; Romer 1986; 1990). Second, the mathematical theory of dynamic systems has been applied to the consideration of economic issues ranging from the stability of economic equilibrium (Gandolfo 1981) to cyclical patterns (Goodwin and Punzo 1987; Lucas 1987) and the emergence of new structures associated with qualitatively new features taken up by the dynamic relationships between economic variables (Anderson et al. 1988; Arthur et al. 1991a; 1991b). Third, the decomposition of economic aggregates and forces has stimulated renewed interest in the analysis of structural economic dynamics, which may be associated with the stage-structure of economic transitions (Hicks 1973; Lowe 1976; Quadrio-Curzio 1986), the long-run transformation of broad economic aggregates (Pasinetti 1981; 1993), the emergence of new and relatively persistent patterns of economic organization and their diffusion across economic sectors and over time (Landesmann and Scazzieri 1994).

Roberto

University of Bologna

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——(1991b) ‘Dynamics and structures’, Structural Change and Economic Dynamics 2(1).

Baranzini, M. (1991) A Theory of Wealth Distribution and Accumulation, Oxford.

Baranzini, M. and Scazzieri, R. (eds) (1990) The Economic Theory of Structure and Change, Cambridge, UK.

Domar, E.D. (1946) ‘Capital expansion, rate of growth and employment’ , Econometrica 14.

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Pasinetti, L.L. (1962) ‘The rate of profit and income distribution in relation to the rate of economic growth’, Review of Economic Studies 29.

——(1981) Structural Change and Economic Growth: A Theoretical Essay on the Dynamics of the Wealth of Nations, Cambridge, UK.

——(1993) Structural Economic Dynamics: A Theory of the Economic Consequences of Human Learning, Cambridge, UK.

Quadrio-Curzio, A. (1986) ‘Technological scarcity: an essay on production and structural change’, in M.Baranzini and R.Scazzieri (eds) Foundations of Economics: Structures of Inquiry and Economic Theory, Oxford.

Robertson, D.H. (1914) ‘Some material for a study of trade fluctuations’, Journal of the Royal Statistical Society 77.

——(1915) A Study of Industrial Fluctuation, London.

Robinson, J.V. (1956) The Accumulation of Capital, London.

Romer, P.M. (1986) ‘Increasing returns and long run growth’, Journal of Political Economy 94.

(1990) ‘Endogenous technical change’, Journal of Political Economy 98.

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Baranzini, M. and Scazzieri, R. (1990) ‘Economic structure: analytical perspectives’, in M.Baranzini and R.Scazzieri (eds) The Economic Theory of Structure and Charm, Cambridge, UK.

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Solow, R.M. (1970) Growth Theory: An Exposition, Oxford.

See also: economic growth.

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