Creative destruction and development of the global economy

Abstract

Objective: The objective of the article is to empirically recognize the significance of creative destruction for the development of contemporaneous global economy, in particular: (1) the influence of creation and destruction on development processes and how this influence changed over time; (2) the effects of creation and destruction on disparities in the level of development between the so-called ‘countries of the South and the North.’ Research Design & Methods: We conducted the econometric analysis for the years 1970-2020, which we divided into four analytical periods. We used time series data from the UNCTAD database for 220 countries, the group of developing countries, and the group of developed countries. We used evometrics to measure creative destruction, which enabled its decomposition into the innovation effect (creation) and the selection effect (destruction). Modelling comprised two economic categories: GDP per capita dynamics and development gap index, relating them to the innovation and selection effects. We used linear regression and estimated the parameters using the OLS. Findings: Our results showed that both creation and destruction had a positive influence on the global GDP per capita dynamics and destruction played a dominant role in this process. Its impact increased over time. The growth of creation and destruction resulted in the increased dynamics of the development gap, which we can consider as a specific cost of development based upon creative destruction. In the period of profound geopolitical transformations in the world economy (1982-1998) creation did not affect the development of the global economy and the dynamics of development gap. Implications & Recommendations: Our results indicate that the full use of the development potential created by innovations requires uninterrupted operation of not only creation, but also properly functioning destruction. Some scholars postulate eliminating destruction from development processes. However, this may lead to a prosperity loss. The cost of creative destruction is not destruction as such but its erroneous operation caused, for example, by institutional, political, and economic factors. In the context of the economic policy of developing countries, this statement implies that solutions aimed at stimulating innovations should be accompanied by activities facilitating the transfer of resources from less to more effective uses. Contribution & Value Added: Modification of the theoretical construction of Schumpeter, enabling both theoretical and empirical analysis of the role of creative destruction in the processes of development of the world economy. The use of evometrics as a tool for measuring creative destruction at the level of the global economy. The results of the study constitute an important contribution to the discussion on the role of creative destruction in development processes, especially concerning destruction, which is commonly assigned a pejorative meaning and identified with the cost of implementing innovations.

Keywords

• creative destruction
• economic development
• development gap
• global economy
• evometrics