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Quality Ladders in the Theory of Growth

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  • Gene M. Grossman
  • Elhanan Helpman

Abstract

We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3099.

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Date of creation: Sep 1989
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Publication status: published as The Review of Economic Studies, Vol. 58, No. 193, pp. 43-61, (January 1991)
Handle: RePEc:nbr:nberwo:3099

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  1. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(3), pages 395-410, August.
  3. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 26(3), pages 1120-71, September.
  6. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, Econometric Society, vol. 53(3), pages 567-85, May.
  7. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
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