CandleFocus Glossary Editor
Kondratieff Wave theory is an economic concept proposed by Russian economist Nikolai Kondratieff (1892-1938). Under this theory, the global economy experiences cycles which last for around 50-60 years and are separated into four distinct phases – expansion, prosperity, recession, and depression. The aim of the theory is to explain why certain economic movements occur in such long patterns and how it is possible for them to continue for such a long period of time.
The Expansion phase is characterized by a return to growth, a new cycle of productive investments, a renewed interest in speculation and higher demand in the bond markets. During the Prosperity period which follows the Expansion, the economy is characterized by increased productivity, increased exports, higher real wages and profits, increased patent activity and rising employment. In the Recession phase, there is a decrease in economic activity, increased unemployment and wages, decrease in capital investments and decreased consumption. The Depression phase is marked by a collapse in the banking sector, a decrease in the demand of primary resources, decreased consumption, a decrease in productivity and a decrease in wages.
The Kondratieff Wave theory has been met with criticism for the lack of empirical evidence which fails to show the exact parameters of the cycles. Additionally, its applicability over the last 60 years has been debated, with some economists arguing that technological changes and globalization have resulted in greater fluctuations in the market which disrupt the accuracy of predictions taken from the theory.
Despite this, the Kondratieff Wave has enabled economists to understand and predict long-term economic trends and it is seen as an important tool to explain economic history. The theory has been used in many different ways, for instance to prepare for economic recessions and a prepare for the next boom period.
Overall, the Kondratieff Wave is a useful tool for long-term economic cycle analysis, enabling the prediction of future economic cycles. However, its lack of empirical evidence and the fact that it's applicability has been questioned means that it must be used in conjunction with other economic theories in order to create a complete picture.
The Expansion phase is characterized by a return to growth, a new cycle of productive investments, a renewed interest in speculation and higher demand in the bond markets. During the Prosperity period which follows the Expansion, the economy is characterized by increased productivity, increased exports, higher real wages and profits, increased patent activity and rising employment. In the Recession phase, there is a decrease in economic activity, increased unemployment and wages, decrease in capital investments and decreased consumption. The Depression phase is marked by a collapse in the banking sector, a decrease in the demand of primary resources, decreased consumption, a decrease in productivity and a decrease in wages.
The Kondratieff Wave theory has been met with criticism for the lack of empirical evidence which fails to show the exact parameters of the cycles. Additionally, its applicability over the last 60 years has been debated, with some economists arguing that technological changes and globalization have resulted in greater fluctuations in the market which disrupt the accuracy of predictions taken from the theory.
Despite this, the Kondratieff Wave has enabled economists to understand and predict long-term economic trends and it is seen as an important tool to explain economic history. The theory has been used in many different ways, for instance to prepare for economic recessions and a prepare for the next boom period.
Overall, the Kondratieff Wave is a useful tool for long-term economic cycle analysis, enabling the prediction of future economic cycles. However, its lack of empirical evidence and the fact that it's applicability has been questioned means that it must be used in conjunction with other economic theories in order to create a complete picture.