Innovations vs money illusion

Анотація

The purpose of the study in this article is to examine the theoretical and practical problems of the economic assessment of the impact of the production factor of innovations on the rate of economic growth when applying two hypostases of the “monetary illusion” methodology. The first of these involves removing the deflated cost of innovative products from the nominal GDP volume when calculating real GDP and the second recognizes the impact of innovations on the dynamics of real GDP through a change in the total factor productivity in the Cobb–Douglas function. The relationship between these two phenomena exists because they lack a comparison base from the previous period for a correct assessment of the specified impact of innovations.The analysis showed that if there are certain volumes of innovative products in the country, standard algorithms for calculating real GDP underestimate its volume due to the specificity of innovations as separate economic phenomena. This distorts our idea of the scale of real value added in the country due to its underestimation, which has a negative impact on further calculations of the productivity level of the national economy, reducing this indicator. The latter is directly related to planning the level of social standards in the country. Underestimating the volume of real GDP growth from innovative activity leads to an underestimation of this factor as a priority when strategizing economic policy.The article argues that the reason for these statistical errors is the limited understanding of Joseph Schumpeter’s central scientific invention — the definition of technological innovation as a separate isolated factor of production, operating independently of the resources existing in the base period, and the concept of the volume of innovative products as new added value, separately generated by innovations, which thus affects the increase in real GDP. A similar effect is not observed when assessing the impact of the innovation factor on economic growth through a change in the total factor productivity. Therefore, the value of innovative products is both a nominal and a real economic indicator that is not subject to deflation either when calculating real GDP or when determining the dynamics of the total factor productivity.

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