Product Innovation and Economic Growth Part IV: Demand changes in an aging society

Author Name YOSHIKAWA Hiroshi  (Faculty Fellow, RIETI) /ANDO Koichi  (Chuo University)
Creation Date/NO. March 2015 15-J-012
Research Project Issues Faced by Japan's Economy and Economic Policy Part III: Heterogeneity among economic agents
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Under a declining population, the engine for economic growth is regarded as broadly defined technical progress or innovation. We demonstrate that the production of goods always follows logistic growth. This simple fact results from the saturation of demand for any existing goods and services. This indicates that the growth rate of an advanced economy will eventually fall to zero unless new goods and services are introduced to the market; namely, product innovation is paramount to economic growth. The role of product innovation is not fully captured by the endogenous growth literature which emphasizes the importance of innovation. We present two case studies—hybrid cars and disposable diapers for the aged—to demonstrate the significance of product innovation.