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Scale effects in growth: A role for institutions

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  • Davis, Lewis S.
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    Abstract

    Reliance on a Dixit-Stiglitz production function leads the growth literature naïvely to associate economic scale with the size of a country's population. I develop an alternative approach in which market size is endogenous, reflecting a trade-off between the gains to exploiting non-rival skills and market transaction costs. Transaction costs reflect a country's institutional framework. The model supports scale effects in transitional growth rates and steady state income levels, suggesting scale effects may be important for developing countries. In this framework effective market size depends on a country's institutions. It is independent of population size and other macroeconomic variables.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 66 (2008)
    Issue (Month): 2 (May)
    Pages: 403-419

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    Handle: RePEc:eee:jeborg:v:66:y:2008:i:2:p:403-419

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    Web page: http://www.elsevier.com/locate/jebo

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    Cited by:
    1. Lewis S. Davis & Fuat Şener, 2012. "Intellectual Property Rights, Institutional Quality And Economic Growth," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1240005-1-1.
    2. Alex Trew, 2009. "Institutions and the Scale Effect," CDMA Working Paper Series 200906, Centre for Dynamic Macroeconomic Analysis, revised 03 Apr 2011.

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