The economics of the light economy

The paper provides an interpretative framework and structured empirical evidence of the processes leading to the emergence of a light and slow growth economy in advanced countries. The interpretative framework rests upon the grafting of a) the Schumpeterian hypothesis about the role of creative reaction as the main determinant of the rate of technological change b) in a dynamic version of the Hecksher-Ohlin analysis with c) the Kuznets approach on the strict complementarity of structural and technological changes, and d) the new approach about the direction of technological change biased towards the most intensive use of locally abundant production factors. The analysis of the stylized facts and the empirical evidence confirms that the twin globalization of product and capital markets brought about by the entry of new labor abundant countries in international markets had profound effects on advanced countries leading to the introduction of skill biased technological change with the consequent decline of the role of the manufacturing industry and the emergence of a strong knowledge intensive business service sector. The new biased direction of technological change accelerated the substitution of both capital and unskilled labor with skilled workers with the ultimate effect of reducing the stock of working capital and hence the rates of growth of advanced economies. The slow growth is a physiological feature of the new emerging light economies that rely upon knowledge intensive but capital saving technologies.