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Three Theorems on Growth and Competition

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  • Arnold, Lutz G.

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  • Bauer, Christian J.

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. In diesem Papier werden drei Theoreme zu Wachstum und Wettbewerb in einem Standard-Varietäten-Wachstumsmodell bewiesen und Rückschlüsse für zweitbeste Wettbewerbspolitiken gezogen. Erstens kann kein Wachstum besser sein als geringes Wachstum, weil auch geringe positive Wachstumsraten möglicherweise beträchtliche statische Wohlfahrtsverluste erfordern. Zweitens kann die Ökonomie gegen einen Steady State mit Null-Wachstum konvergieren obwohl ein anderer (sattelpunkt-stabiler) Steady State mit positivem Wachstum existiert, wenn der anfängliche Anteil "billiger", kompetitiver Märkte hinreichend groß ist, da dies eine relativ geringe Nachfrage nach "teueren", innovativen Produkten impliziert. Drittens kann eine solche "Null-Wachstumsfalle" in einer Welt-Ökonomie auftreten, die aus mehreren Ländern besteht, die untereinander durch freien Handel verbunden sind. Für die Wettbewerbspolitik folgt, dass wachstumsfördernde Maßnahmen möglicherweise fehlgeleitet sein können und schnelle Deregulierung und schnelle Handelsliberalisierung potentiell zu langfristiger Stagnation führen können.

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Bibliographic Info

Paper provided by University of Regensburg, Department of Economics in its series University of Regensburg Working Papers in Business, Economics and Management Information Systems with number 423.

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

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

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  2. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  3. Tang, Paul J. G. & Walde, Klaus, 2001. "International competition, growth and welfare," European Economic Review, Elsevier, vol. 45(8), pages 1439-1459, August.
  4. Lutz Arnold, 2007. "A generalized multi-country endogenous growth model," International Economics and Economic Policy, Springer, vol. 4(1), pages 61-100, April.
  5. 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.
  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  7. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
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