This paper explores the role of complementarities and incomplete markets in economic growth. The author analyzes the evolution of an economy composed of a countable set of industries. Individual industries exhibit nonconvexities in production and are linked by localized technological complementarities. These complementarities, when strong enough, produce multiple equilibria in long-run economic activity. The equilibria have a simple probabilistic structure that demonstrates how local interactions can affect the aggregate equilibrium. The model generates interesting cross-sectional and intertemporal dynamics as coordination problems become the source of aggregate and individual industry volatility. Copyright 1993 by The Review of Economic Studies Limited.
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