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This chapter discusses four distinct processes of economic growth: a) Solovian growth, in honor of Robert Solow; b) Smithian growth, Adam Smith's mechanism of growth; c) scale or size effects, which maintained that population growth itself can lead to per capita income growth; and Schumpeterian growth, by Joseph A. Schumpeter. It focuses on the Schumpeterian form of economic growth, which usually accompanies technological change. The chapter discusses technological change dealing with other forms of economic growth only insofar as they touch upon technological change directly. It points out that technological creativity is analyzed largely as a social, rather than an individual, phenomenon. The chapter focuses on why there were, and whether there still are, societies that have more creative individuals in them than others, and discusses the question that lies at the foundation of the issue of issues: Why does economic growth (at least of the Schumpeterian type) occur in some societies and not others?

This chapter demonstrates how Schumpeter’s monetary theory of economic development has endured and stood the test of time. It first addresses the later monetary theory of John Hicks and early representatives of the dissenting view that money matters to growth. Among these, his students James Tobin and Hyman Minsky carried important elements of his vision into the emerging New Keynesian and Post-Keynesian traditions. From the 1970s onwards, the growing literature on financial frictions substantiated his emphasis on imperfect markets by exact theoretical explanations. These allowed for the further integration of finance into Schumpeterian growth models, which have become a forceful strand of the macroeconomic mainstream since the beginning of the 1990s. Similarly, they provide the theoretical underpinning for scripting the nexus of finance and growth in the more recent waves of agent-based models. Finally, the chapter discusses the empirical research on the nexus between finance and growth.

This chapter discusses the technological progress in the Industrial Revolution, usually dated between about 1750 and 1830. It notes that although Britain is frequently thought of as its locus, a large part of the new technology was the result of work done in other European countries and, later, in the United States. The chapter observes that the fruits of the Industrial Revolution were slow in coming, and that although per capita consumption and living standards increased little initially, production technologies changed dramatically in many industries and sectors, which prepared the way for sustained Schumpeterian growth in the second half of the nineteenth century, when technological progress spread to previously unaffected industries. It examines the technological changes during this period occurring in four main groups, namely: power technology, metallurgy, textiles, and a miscellaneous category of other industries and services.

The effects of high-skill immigration on receiving countries are theoretically ambiguous. Skilled migrants may increase the profitability and innovative capacity of the firm, but they may crowd out domestic workers and lower the wages of close substitutes. What has been missing is a discussion about how migrants may affect the product-mix produced by a firm and the innovation involved in creative destruction. Economists have identified product entry and exit as a primary channel through which innovation impacts economic growth. In this paper, we document how high-skill immigration affects product reallocation (entry and exit) at the firm level. Using data on H-1B Labor Condition Applications (LCAs) matched to retail scanner data on products and Compustat data on firm characteristics, we find that H-1B certification is associated with higher product reallocation and revenue growth. A ten percent increase in the share of H-1B workers is associated with a two percent increase in product reallocation rates—our measure of innovation. These results shed light on the economic consequences of innovation by high-skill immigrants to the United States.

This chapter summarizes the main analyses of Italy’s economic decline, discusses their limitations, and sketches the interpretation offered in this book. The discussion is set in the framework of Schumpeterian growth theory. It moves from the observation that during the 1980s Italy’s TFP performance began to diverge from that of its peers, andG that growth has been stagnant since the early 1990s. The existing interpretations identify the proximate causes of the country’s decline, not its deeper ones, nor do they satisfactorily explain why an unprecedented wave of structural reforms failed to reverse it. This chapter advances the hypothesis, explored in the book, that its deeper causes lie in the political economy of growth, for innovation and economic creative destruction can be hindered if political creative destruction is limited and the ensuing systemic constraints undermine institutional reform.

This chapter first theorizes as if each system leader has been similar in terms of the resource foundations it has brought to the arena and what it has been able to do with those foundations. Earlier leaders were much weaker than later leaders. What accounts for the difference? Our answer is that system leaders have had variable claims to leads in commerce, technology, and energy. When they combined all three, they became very powerful. The chapter then addresses one of the central issues of Big History: the swinging of the socioeconomic, military, and political lead from western Eurasia to eastern Eurasia and back to western Eurasia and North America in what is sometimes referred to as the “Great Divergence.” This oscillation was put in motion by the discovery of agricultural techniques that gave the West a lead to innovate all sorts of things. Gradually the East caught up, until at one point Rome and Han China were roughly equal. After Rome declined and the Han Empire fragmented, China came back in the Sui–Tang–Song dynasty period, while western Europe remained fragmented. However, the medieval Chinese lead did not persist. Ultimately, the West was able to forge ahead by combining new energy sources and technology. Now, China may be catching up once again.