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Factor-Augmenting Technology Choice and Monopolistic Competition

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  • Jakub Growiec

Abstract

Abstract. We put forward a tractable, interpretable, and easily generalizable framework for modeling endogeneous factor-augmenting technology choice by monopolistically competitive firms. The setup is framed within the standard Dixit and Stiglitz (1977) model of monopolistic competition. Optimal technology choice is made here either by final goods producers or (differentiated) intermediate goods producers. These two cases have different implications for the distribution of output but they yield the same aggregate level of output, the same aggregate production function, and equivalent macroeconomic dynamics. Thanks to this property, the proposed framework can be used as a building block in a variety of embedding structures, including those which require to be solved recursively (separately for the dynamics of aggregate variables and for the distribution in each time period).

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_038.

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Length: 20 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:deg:conpap:c017_038

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Keywords: optimal technology choice; monopolistic competition; normalized CES production function; aggregation;

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References

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  1. Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers 09-04, Center for Economic Studies, U.S. Census Bureau.
  2. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  3. David N. Weil, 1996. "Appropriate Technology and Growth," Working Papers 96-24, Brown University, Department of Economics.
  4. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, Econometric Society, vol. 75(5), pages 1371-1409, 09.
  5. Nakamura, Hideki, 2009. "Micro-foundation for a constant elasticity of substitution production function through mechanization," Journal of Macroeconomics, Elsevier, Elsevier, vol. 31(3), pages 464-472, September.
  6. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  7. Jakub Growiec, 2011. "A microfoundation for normalized CES production functions with factor-augmenting technical change," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 98, National Bank of Poland, Economic Institute.
  8. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
  9. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.-A., . "On the Dixit-Stiglitz model of monopolistic competition," CORE Discussion Papers RP -1211, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Charles I. Jones & Paul M. Romer, 2009. "The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital," NBER Working Papers 15094, National Bureau of Economic Research, Inc.
  11. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(1), pages 1-37, 03.
  12. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 105, Boston University, Institute for Economic Development.
  13. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research, National Bank of Belgium 35, National Bank of Belgium.
  14. Growiec, Jakub, 2006. "A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change," MPRA Paper 7069, University Library of Munich, Germany.
  15. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 26(5), pages 769-799, December.
  16. Growiec, Jakub, 2008. "Production functions and distributions of unit factor productivities: Uncovering the link," Economics Letters, Elsevier, Elsevier, vol. 101(1), pages 87-90, October.
  17. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2584, C.E.P.R. Discussion Papers.
  18. León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2009. "Identifying the elasticity of substitution with biased technical change," Working Paper Series, European Central Bank 1001, European Central Bank.
  19. 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.
  20. Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521096720.
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Cited by:
  1. Jakub Growiec, 2011. "A Microfoundation for Normalized CES Production Functions with Factor-Augmenting Technical Change," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c016_013, DEGIT, Dynamics, Economic Growth, and International Trade.

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