Innovation through local interaction, imitation and investment waves

• Innovations: the outcome of self-organised search for information and R&D.
• This is a process that generates innovations and innovation-driven investment waves.
• Leading firms’ innovations spur laggards’ imitation and imitation-driven investment.
• Investment waves determine structural breaks and cause effective demand oscillations.
• Effective demand changes cause income redistribution and employment variations.

This paper inquires about the structural breaks that investment generated by innovation waves imparts to an economic system. Its analysis is confined to investigate only the kind of investment which follows from innovations by leading firms as well as from a catching up process by imitating laggards. The innovation process is modeled as a self-organising process of information search set off by Poisson arrivals. Resulting investment waves determine structural changes in effective demand patterns causing macroeconomic disequilibria that prompt adjustments in capacity, demand and employment. Finally, it is argued that the wave-like nature of innovations and innovation driven investment is a structural cause of economic activity oscillations.