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The market Size Effect in Endogenous Growth Reconsidered

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Abstract

This paper aims at disentangling two effects of the labor supply size on long-run growth that are traditionally undistinguishable under preference homotheticity: a scale effect, and a market size effect. To reach this goal, we present two horizontal-innovation models of endogenous growth with non-homothetic preferences. We demonstrate in particular that in such set-ups, keeping the economy's total effective labor supply constant, a "richer" country (i.e., with higher labor productivity and a smaller labor force) grows faster than a "poorer" country (i.e., with lower labor productivity and a larger labor force), leading the two countries to diverge

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  • Hélène Latzer & Kiminori Matsuyama & Mathieu Parenti, 2018. "The market Size Effect in Endogenous Growth Reconsidered," Documents de travail du Centre d'Economie de la Sorbonne 18032, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:18032
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    More about this item

    Keywords

    Divergence; horizontal Innovation; Knowledge Spillover; Endogenous Growth; Balanced Growth Path; Variable price elasticity; Endogenous Markup; Nonhomotheticity; Direct Explicit Additivity; Indirect Explicit Additivity;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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