Ritsumeikan Asia Pacific University

Abstract:Economic reality is characterized of nonlinear interactions among different variables, constant changes and complicated (unpredictable) behavior during dynamic processes. Many economic theories and models have been proposed to explain and predict the complexity of economic change. Nevertheless, it is only by the early 1980s that economists began to formally analyze nonlinear economic phenomena under influences of the development in mathematics, complex systems and computer. Complex Systems is a new field of science. It studies how parts of a system give rise to the collective behaviors of the system and how the system interacts with its environment. Complex systems include, for instance, social systems formed out of people, the brain formed out of neurons, the weather formed out of air flows. The theory is also concerned with indirect effects. I will discuss the significance of theory of complex systems for analyzing economic evolution. I also explain the necessity of structural dynamic approach and discuss possible implications of theory of complex systems for economic processes with different speeds of change. We illustrate a way to construct an economic growth model with environmental change and policy that includes some main models in the literature of economic growth theory as special cases in the structural sense. We show that the theory of complex systems provides a basic idea and important tool for building a general economic theory.