SlideShare a Scribd company logo
1 of 14
Download to read offline
SCHUMPETERIAN THEORY




                     presented by,
                  usha susan
mathew                    vishnu
chandradas
ECONOMIC DEVELOPMENT
   Economic development is the development of economic wealth of countries or
    regions for the well-being of their inhabitants.

   Economic Growth & development are two different terms used in economics.
    Generally speaking economic development refers to the problems of
    underdeveloped countries and economic growth to those of developed
    countries.
JOSEPH.ALOIS. SCHUMPETER
SCHUMPETER’S MODEL OF ECONOMIC DEVELOPMENT
   Schumpeter assumes a perfectly competitive economy which is in stationary
    equilibrium. In such a stationary state ,there is perfect competitive equilibrium.
    no profits, no interest rates, no savings, no investments and no involuntary
    unemployment. This equilibrium is characterized by the term “circular flow”,
    continues to repeat itself every year. In the circular flow, the same products are
    produced every year in same manner.

   According to him economic development “is spontaneous and discontinuous
    change in the channels of the circular flow, disturbance of equilibrium, which
    forever alters and displaces the equilibrium state previously existing”

   Development consists in the carrying out of new combinations for which
    possibilities exist in the stationary state. New combinations come about in the
    form of INNOVATIONS.
INNOVATIONS
An innovations may consist of:
      1.The introduction of a new product
      2.The introduction of new method of production
      3.The opening up of a new market
      4.The conquest of a new source of raw materials
      5.The carrying out of a new organization of any industry like the
        creation of monopoly
According to Schumpeter ,it is the introduction of new product and the
continual improvements in the existing ones that lead to development.
ROLE OF INNOVATOR
   Schumpeter assigns the role of an innovator not to the capitalist but to the
    entrepreneur. The entrepreneur is not a man of ordinary managerial ability, but
    one who introduces something entirely new. The entrepreneur is motivated by:
         a)The desire to find a private commercial kingdom
         b)The will to conquer an prove his superiority
         c)The joy of creating ,of getting things done ,or simply of exercising one’s
           energy and ingenuity.

         To perform his economic condition ,the entrepreneur requires two thing :
         first ,the existence of technical knowledge in order to produce new ;
         second, the power of disposal over the factors of production in the form
         of credit.
ROLE OF PROFITS
   An entrepreneur innovates to earn profits.

   Profits are conceived “as a surplus over costs :a difference between the total
    receipts and outlay –as a function of innovation

   According to Schumpeter ,under competitive equilibrium the price of each
    product just equals its cost of production and there no profits. Profits arise due
    to dynamic changes resulting from an innovation. They continue to exist till the
    innovation becomes general.
BREAKING THE CIRCULAR FLOW
   Schumpeter’s model starts with the breaking up of the circular flow with an
    innovation in the form of a new product by an entrepreneur for the purpose of
    earning profit.

   In order to break the circular flow ,the innovating entrepreneurs are financed by
    bank-credit expansion.

   Investment in innovation is risky, they must pay interest on it. Once the new
    innovation becomes successful and profitable, other entrepreneurs follow it.

   Innovations in one field may induce other innovations in related fields. The
    emergence of motor car industry may in, in turn ,stimulate a wave of new
    investments in the construction of highways ,rubber tyre etc.
CYCLICAL PROCESS
   Investment is assumed to be financed by creation of bank credit.
   It increases money incomes and prices and helps to create a cumulative expansion
    throughout the economy.
   With the increase in purchasing power of the customers, the demand for the
    products of the old industries increases to the supply.
   Price rise ,profit increase and old industries expand by borrowing from the banks. it
    induces a secondary wave of credit ,inflation which is superimposed or the primary
    wave of innovation
   After a period the new products start appearing in the market displacing the old
    products and enforcing process of liquidation and readjustment.
   The demand for old product is decreased. Their price fall. some are even forced to
    run into liquidation.
   As though innovators start repaying bank loans out of profits, the quantity of money
    is decreased and prices tends to fall. profit decline. Uncertainty &the impulse for
    innovation is reduced.
   Depression entered.
   Analysis begun with the assumption that country’s economic performance is in
    rigid condition, i.e., there are no population growth and net investment, and
    high level of unemployment. Some entrepreneurs committed to reformation and
    followed by other entrepreneurs until there is an increase in investment

   The impacts are increasing in society’s income and consumption. This
    phenomena will lead the entrepreneurs to increase the new capital.

    -    induced investment – increasing of investment because of increasing in
    income , production and profit.

    -    autonomous investment – investments which determined by long-term
    development, such as new resources found and technology which can create
    reformation
   The economic development (booming period) will be followed by
    economic recession

    -    some entrepreneurs who cannot compete with those
    entrepreneurs whose have done reformation will subsequently
    failed in their business and lost their market and have to close
    their business.

    -    creation of new products will lead to uncertainty among the
    entrepreneurs in terms investment and capital that are needed for
    business development

    -    Those entrepreneur who are able to create the new products
    and market will lead to economic booming However, the
    equilibrium point is higher than the economic recession period.
    -    With the new equilibrium, the level of per capita income is
    higher
PROCESS AT THE END OF CAPITALISM
   Three forces are discernible, that are the beginning of the creeping death of
    capitalism. They are ;
               (1)The decadence of the entrepreneurial function
               (2)The disintegration of bourgeoisie family; and
               (3)The destruction of the institutional frame work of the capitalist
                   society.
   Overruling over class-wage people
   The tendency towards concentration into big concerns weakens and destroys the
    twin institutions of private property and freedom of contract.
   As a result of clashing of groups capitalism results crumbling and there is a
    gradual movements towards socialism.
   At the end capitalism would fade away.
CRITICISMS OF THEORY
   1.The entire process of Schumpeter's theory is based on the innovator whom he
    regards as an ideal person

   2.economic development is the result of the cyclical process

   3.Cyclical changes due to innovation is not correct

   4.Schumpeter regards innovation as the main cause of economic development

   5.Too much importance to bank -credit
DIAGRAM OF SCHUMPETER’S MODEL OF E.D

More Related Content

What's hot

The big push theory
The big push theoryThe big push theory
The big push theoryAnjali Singh
 
Business and Trade cycles
Business and Trade cycles Business and Trade cycles
Business and Trade cycles Prabha Panth
 
Pareto optimality 2
Pareto optimality 2 Pareto optimality 2
Pareto optimality 2 Prabha Panth
 
Mellor`s model of agriculture development
Mellor`s model of agriculture developmentMellor`s model of agriculture development
Mellor`s model of agriculture developmentVaibhav verma
 
Theories of economic development
Theories of economic developmentTheories of economic development
Theories of economic developmentVaibhav verma
 
Schumpeter Theory of Economic Development
Schumpeter Theory of Economic DevelopmentSchumpeter Theory of Economic Development
Schumpeter Theory of Economic DevelopmentKrishna Lala
 
Marxian theory of economic development
Marxian theory of economic developmentMarxian theory of economic development
Marxian theory of economic developmentAsha V K Menon
 
Role of State in Economic Activities
Role of State in Economic Activities Role of State in Economic Activities
Role of State in Economic Activities jaheermuktharkp
 
Lewis Theory Of Economic Development
Lewis Theory Of Economic DevelopmentLewis Theory Of Economic Development
Lewis Theory Of Economic Developmentrehan23may
 
The investment function
The investment functionThe investment function
The investment functionAmit Chaudhary
 
Schumpeterian Model Of Economic Growth
Schumpeterian Model Of Economic GrowthSchumpeterian Model Of Economic Growth
Schumpeterian Model Of Economic GrowthSatyaki Mitra
 
Classical theory of economics
Classical theory of economicsClassical theory of economics
Classical theory of economicsAvijit Palit
 
Lewis theory of_unmlimited_supply_of_labour
Lewis theory of_unmlimited_supply_of_labourLewis theory of_unmlimited_supply_of_labour
Lewis theory of_unmlimited_supply_of_labourMadhusudanbindal
 
Balace Unbalance Growth
Balace Unbalance GrowthBalace Unbalance Growth
Balace Unbalance GrowthPiter Biswas
 
Quantity Theory of Money
Quantity Theory of MoneyQuantity Theory of Money
Quantity Theory of MoneyAbdul Jamal
 
Restatement of quantity theory of money
Restatement of quantity theory of moneyRestatement of quantity theory of money
Restatement of quantity theory of moneyNayan Vaghela
 

What's hot (20)

The big push theory
The big push theoryThe big push theory
The big push theory
 
Business and Trade cycles
Business and Trade cycles Business and Trade cycles
Business and Trade cycles
 
David ricardo
David ricardoDavid ricardo
David ricardo
 
Pareto optimality 2
Pareto optimality 2 Pareto optimality 2
Pareto optimality 2
 
Mellor`s model of agriculture development
Mellor`s model of agriculture developmentMellor`s model of agriculture development
Mellor`s model of agriculture development
 
Harrod domar
Harrod domarHarrod domar
Harrod domar
 
Theories of economic development
Theories of economic developmentTheories of economic development
Theories of economic development
 
Schumpeter Theory of Economic Development
Schumpeter Theory of Economic DevelopmentSchumpeter Theory of Economic Development
Schumpeter Theory of Economic Development
 
Marxian theory of economic development
Marxian theory of economic developmentMarxian theory of economic development
Marxian theory of economic development
 
Role of State in Economic Activities
Role of State in Economic Activities Role of State in Economic Activities
Role of State in Economic Activities
 
Lewis Theory Of Economic Development
Lewis Theory Of Economic DevelopmentLewis Theory Of Economic Development
Lewis Theory Of Economic Development
 
The investment function
The investment functionThe investment function
The investment function
 
Schumpeterian Model Of Economic Growth
Schumpeterian Model Of Economic GrowthSchumpeterian Model Of Economic Growth
Schumpeterian Model Of Economic Growth
 
1 say's law of markets
1 say's law of markets1 say's law of markets
1 say's law of markets
 
Classical theory of economics
Classical theory of economicsClassical theory of economics
Classical theory of economics
 
Lewis theory of_unmlimited_supply_of_labour
Lewis theory of_unmlimited_supply_of_labourLewis theory of_unmlimited_supply_of_labour
Lewis theory of_unmlimited_supply_of_labour
 
Balace Unbalance Growth
Balace Unbalance GrowthBalace Unbalance Growth
Balace Unbalance Growth
 
Quantity Theory of Money
Quantity Theory of MoneyQuantity Theory of Money
Quantity Theory of Money
 
Restatement of quantity theory of money
Restatement of quantity theory of moneyRestatement of quantity theory of money
Restatement of quantity theory of money
 
Lewis model
Lewis modelLewis model
Lewis model
 

Similar to Schumpeter theory of economic development

Schumpeter theory of economic development
Schumpeter theory of economic developmentSchumpeter theory of economic development
Schumpeter theory of economic developmentvishnuchandradas
 
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptx
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptxW3L2_Lecture 8- Strategies of economic development and growth-III (1).pptx
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptxAMBIKABHANDARI5
 
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdf
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdfW3L2_Lecture 8- Strategies of economic development and growth-III (1).pdf
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdfAMBIKABHANDARI5
 
Schumpeter theory of trade cycle
Schumpeter theory of trade cycleSchumpeter theory of trade cycle
Schumpeter theory of trade cycleGirish Puranik
 
Nirma Etp Theories Of Ent.
Nirma Etp Theories Of Ent.Nirma Etp Theories Of Ent.
Nirma Etp Theories Of Ent.guestad7667
 
Trade cycle chapter 4
Trade cycle chapter 4Trade cycle chapter 4
Trade cycle chapter 4Nayan Vaghela
 
Business cycle: Meaning, types and phases
Business cycle: Meaning, types and phasesBusiness cycle: Meaning, types and phases
Business cycle: Meaning, types and phasesviveksangwan007
 
Formative Capitalism
Formative CapitalismFormative Capitalism
Formative CapitalismANM Farukh
 
A 063 ashish gupta tradecycle
A 063 ashish gupta tradecycleA 063 ashish gupta tradecycle
A 063 ashish gupta tradecycleashishgupta1602
 
Entrepreneurship Lecture Notes Part 1
Entrepreneurship Lecture Notes Part 1Entrepreneurship Lecture Notes Part 1
Entrepreneurship Lecture Notes Part 1Odofin Caleb
 
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptx
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptxW3L3_Lecture 9- Strategies of economic development and growth-IV.pptx
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptxAMBIKABHANDARI5
 
BUSINESS CYCLE (NOTES).pdf
BUSINESS CYCLE (NOTES).pdfBUSINESS CYCLE (NOTES).pdf
BUSINESS CYCLE (NOTES).pdfamu aligarh
 
8 business cycles
8 business cycles8 business cycles
8 business cyclesdomsr
 

Similar to Schumpeter theory of economic development (20)

Schumpeter theory of economic development
Schumpeter theory of economic developmentSchumpeter theory of economic development
Schumpeter theory of economic development
 
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptx
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptxW3L2_Lecture 8- Strategies of economic development and growth-III (1).pptx
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pptx
 
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdf
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdfW3L2_Lecture 8- Strategies of economic development and growth-III (1).pdf
W3L2_Lecture 8- Strategies of economic development and growth-III (1).pdf
 
Schumpeter Theory
Schumpeter TheorySchumpeter Theory
Schumpeter Theory
 
Schumpeter theory of trade cycle
Schumpeter theory of trade cycleSchumpeter theory of trade cycle
Schumpeter theory of trade cycle
 
Nirma Etp Theories Of Ent.
Nirma Etp Theories Of Ent.Nirma Etp Theories Of Ent.
Nirma Etp Theories Of Ent.
 
Theories of entrepreneurship_shriram.dawkhar
Theories of entrepreneurship_shriram.dawkharTheories of entrepreneurship_shriram.dawkhar
Theories of entrepreneurship_shriram.dawkhar
 
Business cycle
Business cycleBusiness cycle
Business cycle
 
Trade cycle chapter 4
Trade cycle chapter 4Trade cycle chapter 4
Trade cycle chapter 4
 
Business cycle: Meaning, types and phases
Business cycle: Meaning, types and phasesBusiness cycle: Meaning, types and phases
Business cycle: Meaning, types and phases
 
Formative Capitalism
Formative CapitalismFormative Capitalism
Formative Capitalism
 
A 063 ashish gupta tradecycle
A 063 ashish gupta tradecycleA 063 ashish gupta tradecycle
A 063 ashish gupta tradecycle
 
8business cycles-110505123053-phpapp01
8business cycles-110505123053-phpapp018business cycles-110505123053-phpapp01
8business cycles-110505123053-phpapp01
 
Entrepreneurship Lecture Notes Part 1
Entrepreneurship Lecture Notes Part 1Entrepreneurship Lecture Notes Part 1
Entrepreneurship Lecture Notes Part 1
 
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptx
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptxW3L3_Lecture 9- Strategies of economic development and growth-IV.pptx
W3L3_Lecture 9- Strategies of economic development and growth-IV.pptx
 
BUSINESS CYCLE (NOTES).pdf
BUSINESS CYCLE (NOTES).pdfBUSINESS CYCLE (NOTES).pdf
BUSINESS CYCLE (NOTES).pdf
 
8 business cycles
8 business cycles8 business cycles
8 business cycles
 
Mexico Business Cycle
Mexico Business CycleMexico Business Cycle
Mexico Business Cycle
 
Business cycles
Business cyclesBusiness cycles
Business cycles
 
Theories of profit(3)
Theories of profit(3)Theories of profit(3)
Theories of profit(3)
 

Recently uploaded

IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfIaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfDaniel Santiago Silva Capera
 
AI Fame Rush Review – Virtual Influencer Creation In Just Minutes
AI Fame Rush Review – Virtual Influencer Creation In Just MinutesAI Fame Rush Review – Virtual Influencer Creation In Just Minutes
AI Fame Rush Review – Virtual Influencer Creation In Just MinutesMd Hossain Ali
 
UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8DianaGray10
 
9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding TeamAdam Moalla
 
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...Aggregage
 
VoIP Service and Marketing using Odoo and Asterisk PBX
VoIP Service and Marketing using Odoo and Asterisk PBXVoIP Service and Marketing using Odoo and Asterisk PBX
VoIP Service and Marketing using Odoo and Asterisk PBXTarek Kalaji
 
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019IES VE
 
OpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureOpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureEric D. Schabell
 
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...DianaGray10
 
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UbiTrack UK
 
Empowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintEmpowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintMahmoud Rabie
 
Designing A Time bound resource download URL
Designing A Time bound resource download URLDesigning A Time bound resource download URL
Designing A Time bound resource download URLRuncy Oommen
 
Nanopower In Semiconductor Industry.pdf
Nanopower  In Semiconductor Industry.pdfNanopower  In Semiconductor Industry.pdf
Nanopower In Semiconductor Industry.pdfPedro Manuel
 
UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7DianaGray10
 
Cybersecurity Workshop #1.pptx
Cybersecurity Workshop #1.pptxCybersecurity Workshop #1.pptx
Cybersecurity Workshop #1.pptxGDSC PJATK
 
Meet the new FSP 3000 M-Flex800™
Meet the new FSP 3000 M-Flex800™Meet the new FSP 3000 M-Flex800™
Meet the new FSP 3000 M-Flex800™Adtran
 
20230202 - Introduction to tis-py
20230202 - Introduction to tis-py20230202 - Introduction to tis-py
20230202 - Introduction to tis-pyJamie (Taka) Wang
 
How Accurate are Carbon Emissions Projections?
How Accurate are Carbon Emissions Projections?How Accurate are Carbon Emissions Projections?
How Accurate are Carbon Emissions Projections?IES VE
 
Secure your environment with UiPath and CyberArk technologies - Session 1
Secure your environment with UiPath and CyberArk technologies - Session 1Secure your environment with UiPath and CyberArk technologies - Session 1
Secure your environment with UiPath and CyberArk technologies - Session 1DianaGray10
 

Recently uploaded (20)

20150722 - AGV
20150722 - AGV20150722 - AGV
20150722 - AGV
 
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdfIaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
IaC & GitOps in a Nutshell - a FridayInANuthshell Episode.pdf
 
AI Fame Rush Review – Virtual Influencer Creation In Just Minutes
AI Fame Rush Review – Virtual Influencer Creation In Just MinutesAI Fame Rush Review – Virtual Influencer Creation In Just Minutes
AI Fame Rush Review – Virtual Influencer Creation In Just Minutes
 
UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8UiPath Studio Web workshop series - Day 8
UiPath Studio Web workshop series - Day 8
 
9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team9 Steps For Building Winning Founding Team
9 Steps For Building Winning Founding Team
 
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...
The Data Metaverse: Unpacking the Roles, Use Cases, and Tech Trends in Data a...
 
VoIP Service and Marketing using Odoo and Asterisk PBX
VoIP Service and Marketing using Odoo and Asterisk PBXVoIP Service and Marketing using Odoo and Asterisk PBX
VoIP Service and Marketing using Odoo and Asterisk PBX
 
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019
IESVE Software for Florida Code Compliance Using ASHRAE 90.1-2019
 
OpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability AdventureOpenShift Commons Paris - Choose Your Own Observability Adventure
OpenShift Commons Paris - Choose Your Own Observability Adventure
 
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...
Connector Corner: Extending LLM automation use cases with UiPath GenAI connec...
 
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
UWB Technology for Enhanced Indoor and Outdoor Positioning in Physiological M...
 
Empowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership BlueprintEmpowering Africa's Next Generation: The AI Leadership Blueprint
Empowering Africa's Next Generation: The AI Leadership Blueprint
 
Designing A Time bound resource download URL
Designing A Time bound resource download URLDesigning A Time bound resource download URL
Designing A Time bound resource download URL
 
Nanopower In Semiconductor Industry.pdf
Nanopower  In Semiconductor Industry.pdfNanopower  In Semiconductor Industry.pdf
Nanopower In Semiconductor Industry.pdf
 
UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7UiPath Studio Web workshop series - Day 7
UiPath Studio Web workshop series - Day 7
 
Cybersecurity Workshop #1.pptx
Cybersecurity Workshop #1.pptxCybersecurity Workshop #1.pptx
Cybersecurity Workshop #1.pptx
 
Meet the new FSP 3000 M-Flex800™
Meet the new FSP 3000 M-Flex800™Meet the new FSP 3000 M-Flex800™
Meet the new FSP 3000 M-Flex800™
 
20230202 - Introduction to tis-py
20230202 - Introduction to tis-py20230202 - Introduction to tis-py
20230202 - Introduction to tis-py
 
How Accurate are Carbon Emissions Projections?
How Accurate are Carbon Emissions Projections?How Accurate are Carbon Emissions Projections?
How Accurate are Carbon Emissions Projections?
 
Secure your environment with UiPath and CyberArk technologies - Session 1
Secure your environment with UiPath and CyberArk technologies - Session 1Secure your environment with UiPath and CyberArk technologies - Session 1
Secure your environment with UiPath and CyberArk technologies - Session 1
 

Schumpeter theory of economic development

  • 1. SCHUMPETERIAN THEORY presented by, usha susan mathew vishnu chandradas
  • 2. ECONOMIC DEVELOPMENT  Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants.  Economic Growth & development are two different terms used in economics. Generally speaking economic development refers to the problems of underdeveloped countries and economic growth to those of developed countries.
  • 4. SCHUMPETER’S MODEL OF ECONOMIC DEVELOPMENT  Schumpeter assumes a perfectly competitive economy which is in stationary equilibrium. In such a stationary state ,there is perfect competitive equilibrium. no profits, no interest rates, no savings, no investments and no involuntary unemployment. This equilibrium is characterized by the term “circular flow”, continues to repeat itself every year. In the circular flow, the same products are produced every year in same manner.  According to him economic development “is spontaneous and discontinuous change in the channels of the circular flow, disturbance of equilibrium, which forever alters and displaces the equilibrium state previously existing”  Development consists in the carrying out of new combinations for which possibilities exist in the stationary state. New combinations come about in the form of INNOVATIONS.
  • 5. INNOVATIONS An innovations may consist of: 1.The introduction of a new product 2.The introduction of new method of production 3.The opening up of a new market 4.The conquest of a new source of raw materials 5.The carrying out of a new organization of any industry like the creation of monopoly According to Schumpeter ,it is the introduction of new product and the continual improvements in the existing ones that lead to development.
  • 6. ROLE OF INNOVATOR  Schumpeter assigns the role of an innovator not to the capitalist but to the entrepreneur. The entrepreneur is not a man of ordinary managerial ability, but one who introduces something entirely new. The entrepreneur is motivated by: a)The desire to find a private commercial kingdom b)The will to conquer an prove his superiority c)The joy of creating ,of getting things done ,or simply of exercising one’s energy and ingenuity. To perform his economic condition ,the entrepreneur requires two thing : first ,the existence of technical knowledge in order to produce new ; second, the power of disposal over the factors of production in the form of credit.
  • 7. ROLE OF PROFITS  An entrepreneur innovates to earn profits.  Profits are conceived “as a surplus over costs :a difference between the total receipts and outlay –as a function of innovation  According to Schumpeter ,under competitive equilibrium the price of each product just equals its cost of production and there no profits. Profits arise due to dynamic changes resulting from an innovation. They continue to exist till the innovation becomes general.
  • 8. BREAKING THE CIRCULAR FLOW  Schumpeter’s model starts with the breaking up of the circular flow with an innovation in the form of a new product by an entrepreneur for the purpose of earning profit.  In order to break the circular flow ,the innovating entrepreneurs are financed by bank-credit expansion.  Investment in innovation is risky, they must pay interest on it. Once the new innovation becomes successful and profitable, other entrepreneurs follow it.  Innovations in one field may induce other innovations in related fields. The emergence of motor car industry may in, in turn ,stimulate a wave of new investments in the construction of highways ,rubber tyre etc.
  • 9. CYCLICAL PROCESS  Investment is assumed to be financed by creation of bank credit.  It increases money incomes and prices and helps to create a cumulative expansion throughout the economy.  With the increase in purchasing power of the customers, the demand for the products of the old industries increases to the supply.  Price rise ,profit increase and old industries expand by borrowing from the banks. it induces a secondary wave of credit ,inflation which is superimposed or the primary wave of innovation  After a period the new products start appearing in the market displacing the old products and enforcing process of liquidation and readjustment.  The demand for old product is decreased. Their price fall. some are even forced to run into liquidation.  As though innovators start repaying bank loans out of profits, the quantity of money is decreased and prices tends to fall. profit decline. Uncertainty &the impulse for innovation is reduced.  Depression entered.
  • 10. Analysis begun with the assumption that country’s economic performance is in rigid condition, i.e., there are no population growth and net investment, and high level of unemployment. Some entrepreneurs committed to reformation and followed by other entrepreneurs until there is an increase in investment  The impacts are increasing in society’s income and consumption. This phenomena will lead the entrepreneurs to increase the new capital. - induced investment – increasing of investment because of increasing in income , production and profit. - autonomous investment – investments which determined by long-term development, such as new resources found and technology which can create reformation
  • 11. The economic development (booming period) will be followed by economic recession - some entrepreneurs who cannot compete with those entrepreneurs whose have done reformation will subsequently failed in their business and lost their market and have to close their business. - creation of new products will lead to uncertainty among the entrepreneurs in terms investment and capital that are needed for business development - Those entrepreneur who are able to create the new products and market will lead to economic booming However, the equilibrium point is higher than the economic recession period. - With the new equilibrium, the level of per capita income is higher
  • 12. PROCESS AT THE END OF CAPITALISM  Three forces are discernible, that are the beginning of the creeping death of capitalism. They are ; (1)The decadence of the entrepreneurial function (2)The disintegration of bourgeoisie family; and (3)The destruction of the institutional frame work of the capitalist society.  Overruling over class-wage people  The tendency towards concentration into big concerns weakens and destroys the twin institutions of private property and freedom of contract.  As a result of clashing of groups capitalism results crumbling and there is a gradual movements towards socialism.  At the end capitalism would fade away.
  • 13. CRITICISMS OF THEORY  1.The entire process of Schumpeter's theory is based on the innovator whom he regards as an ideal person  2.economic development is the result of the cyclical process  3.Cyclical changes due to innovation is not correct  4.Schumpeter regards innovation as the main cause of economic development  5.Too much importance to bank -credit