Kondratieff Wave

Definition

The Kondratiev Wave is a long-term economic cycle concerning commodity prices and other prices, believed to be driven by technological innovation, resulting in alternating periods of long-term prosperity and economic downturns. This theory was founded by Nikolai D. Kondratiev, an agricultural economist who observed long-term cycles in the prices of agricultural products and copper. Kondratiev suggested that these cycles involve periods of evolution and self-correction. It is also known as 'Kondratiev fluctuations', 'supercycles', 'K-waves', 'waves', or 'long waves'.

Origin

The concept of Kondratiev Waves originated in the 1920s, proposed by Russian economist Nikolai Kondratiev. He discovered approximately 50 to 60-year economic cycles by studying economic data from the 19th and early 20th centuries. This theory was initially based on observations of price fluctuations in agricultural and industrial commodities, particularly copper and wheat.

Categories and Features

Kondratiev Waves are typically divided into four phases: prosperity, recession, depression, and recovery. The prosperity phase is usually marked by technological innovation and economic growth, while the recession phase involves a slowdown in economic activity. The depression phase is a period of economic downturn, and the recovery phase signifies renewed economic growth. The duration and impact of each phase can vary depending on technological advancements and the global economic environment.

Case Studies

A typical example is the early 20th-century Industrial Revolution, considered a prosperity phase of the Kondratiev Wave, driven by technological innovations such as electricity and the widespread adoption of automobiles, which spurred economic growth. Another example is the 1970s oil crisis, which led to a global economic recession, aligning with the recession phase of the Kondratiev Wave.

Common Issues

Investors might face challenges in applying Kondratiev Waves, such as accurately identifying the phase of the cycle and adjusting investment strategies accordingly. A common misconception is that these cycles are fixed, whereas they can actually vary due to multiple influencing factors.