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Specialization, Knowledge Dilution, and Scale Effects in an IO-Based Growth Model

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Author Info

  • Peretto, P.
  • Smulders, J.A.

    (Tilburg University, Center for Economic Research)

Abstract

We present a model where accumulation on non-rival knowledge drives growth but where the scale effect, which may be positive or negative, vanishes asymptotically. This result stems from the interaction between technological differentiation and market structure dynamics. Firms are linked to each other in networks of spillovers determined by the technological proximity of their activities. These spillovers-networks span only a fraction of the total economy and the average technological distance between firms increases with the size of the economy. When the economy expands, less related activities become profitable and specialization increases. As a result, the networks expand at a slower pace than the overall economy. In the limit, the networks cease to grow with the size of the economy. A larger economy, therefore, accumulates a larger tock of total knowledge but not necessarily a larger effective stock of knowledge that is useful to the individual firm. The reason is that the latter expands with the size of the network to which the firm belongs. The scale effect vanishes asymptotically because the stock of effective knowledge that each firm exploits is unrelated to the size of the economy when this is very large.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1998-02.

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Date of creation: 1998
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Handle: RePEc:dgr:kubcen:199802

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Web page: http://center.uvt.nl

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References

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  1. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
  2. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Thompson, Peter & Waldo, Doug, 1994. "Growth and trustified capitalism," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 445-462, December.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Yang, Xiaokai & Borland, Jeff, 1991. "A Microeconomic Mechanism for Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 460-82, June.
  6. Malerba, Franco & Orsenigo, Luigi & Peretto, Pietro, 1997. "Persistence of innovative activities, sectoral patterns of innovation and international technological specialization," International Journal of Industrial Organization, Elsevier, vol. 15(6), pages 801-826, October.
  7. Peretto, Pietro F., 1995. "Sunk Costs, Market Structure, and Growth," Working Papers 95-34, Duke University, Department of Economics.
  8. Zvi Griliches, 1991. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
  9. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-71, September.
  10. Paul Romer, 1991. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  11. Peretto, Pietro F., 1999. "Firm size, rivalry and the extent of the market in endogenous technological change," European Economic Review, Elsevier, vol. 43(9), pages 1747-1773, October.
  12. James D. Adams & Adam B. Jaffe, 1996. "Bounding the Effects of R&D: An Investigation Using Matched Establishment-Firm Data," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 700-721, Winter.
  13. Smulders, J.A. & Klundert, T.C.M.J. van de, 1995. "Imperfect competition, concentration and growth with firm-specific R&D," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153407, Tilburg University.
  14. van de Klundert, Theo & Smulders, Sjak, 1997. " Growth, Competition and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 99-118, March.
  15. Rustichini, Aldo & Schmilz, James Jr., 1991. "Research and imitation in long-run growth," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 271-292, April.
  16. Malerba, Franco & Orsenigo, Luigi, 1995. "Schumpeterian Patterns of Innovation," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 47-65, February.
  17. repec:fth:harver:1473 is not listed on IDEAS
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Citations

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Cited by:
  1. Peretto, Pietro F., 1999. "Industrial development, technological change, and long-run growth," Journal of Development Economics, Elsevier, vol. 59(2), pages 389-417, August.
  2. Nahuis, R., 1998. "The Dynamics of a General Purpose Technology in a Research and Assimilation Model," Discussion Paper 1998-119, Tilburg University, Center for Economic Research.
  3. Alberto BUCCI, 2002. "Market Power, Human Capital and Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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