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Three theorems on growth and competition

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Author Info
Arnold, Lutz G.
Bauer, Christian J.

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Abstract

This paper proves three theorems on growth and competition in a standard increasing variety endogenous growth model and draws conclusions for second-best competition policies. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though another (saddle-point stable) steady state with positive growth exists if the initial share of "cheap" competitive markets is sufficiently high, as this implies a relatively low demand for "expensive" innovative goods. Third, such a "no-growth trap" may happen in a world economy made up of several countries engaged in free trade with each other. As for competition policy, this implies that growth-enhancing policies maybe misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.

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Paper provided by University of Regensburg, Department of Economics in its series Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft with number 423.

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Date of creation: 20 Jun 2007
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Handle: RePEc:bay:rdwiwi:812

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Related research
Keywords: endogeneous growth; competition; deregulation; poverty trap; trade liberalization; Armutsfalle; Handelsliberalisierung; Endogenes Wirtschaftswachstum; Wettbewerb; Deregulierung;

Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Lutz Arnold, 2007. "A generalized multi-country endogenous growth model," International Economics and Economic Policy, Springer, vol. 4(1), pages 61-100, April. [Downloadable!] (restricted)
  2. Tang, Paul J. G. & Walde, Klaus, 2001. "International competition, growth and welfare," European Economic Review, Elsevier, vol. 45(8), pages 1439-1459, August. [Downloadable!] (restricted)
  3. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March. [Downloadable!] (restricted)
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  4. Christian Bauer, 2006. "Competition in an Increasing Variety Growth Model," Working Papers 001, Bavarian Graduate Program in Economics (BGPE). [Downloadable!]
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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