Endogenous Economic Growth Through Selection

Economic growth is modeled as being propelled endogenously by (1) entry, (2) reorganization, (3) rationalization and (4) exit, the first two selection and innovation investments operating in the very long run, and the other two (rationalization and exit) in the short-and immediate-term.Exit should be seen as a disinvestment making room for expansion by forcing resources, notably labor to reallocate.The balance between these factors operating in different time perspectives determines the rate, the sustainability and the stability of the growth process.Quantity adjustment has to be coordinated and growth supported by reasonably predictable prices in dynamic markets.This coordination is dominated by the financial market, its efficiency being critically dependent on the institutions of the economy, that determine incentives to innovate and the disciplining forces of competition.The property rights institutions playa critical role behind the incentives to innovate and engage in technological competition.The growth process as represented requires a micro organization-based macro theory to be explained.It is simulated on the Swedish micro-to-macro model MOSES, and we find that the selection mechanisms operating through the entry and exit processes, albeit slow in the beginning become a dominant moving force in the very long run.A political economy that is unable to organize itself to wait for the very long-run benefits of significant immediate efforts may never experience strong and sustained economic growth. Economic growth as a selection process the problemAdam Smith is the declared father of many basic ideas in modern economics.Re is, however, not as well-known for what he argued was most important of