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Endogenous Growth and Poverty Traps in a Cournotian Model

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  • Jordi Gali
  • Fabrizio Zilibotti

Abstract

We analyze the implications for the dynamics of capital accumulation of market power and endogenous demand elasticities, in an environment in which the latter are affected by the number of competitors in each industry. In equilibrium the interest rate increases as capital accumulates, even though the marginal product of capital is constant. Under standard assumptions two steady states and a balanced growth path exist, and the possibility of multiple equilibrium paths (for given initial conditions) arises. The latter feature is argued to match several empirical observations.

Suggested Citation

  • Jordi Gali & Fabrizio Zilibotti, 1995. "Endogenous Growth and Poverty Traps in a Cournotian Model," Annals of Economics and Statistics, GENES, issue 37-38, pages 197-213.
  • Handle: RePEc:adr:anecst:y:1995:i:37-38:p:197-213
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    References listed on IDEAS

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    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
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    3. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
    4. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, pages 92-96.
    5. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    6. Boldrin, Michele, 1992. "Dynamic externalities, multiple equilibria, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 198-218, December.
    7. Gali, Jordi, 1994. "Monopolistic competition, endogenous markups, and growth," European Economic Review, Elsevier, vol. 38(3-4), pages 748-756, April.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, pages 523-551.
    2. Benhabib, Jess & Gali, Jordi, 1995. "On growth and indeterminacy: some theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 163-211.
    3. Comin, D. & Hobijn, B., 2004. "Cross-country technology adoption: making the theories face the facts," Journal of Monetary Economics, Elsevier, pages 39-83.
    4. John A. List & Haiwen Zhou, 2007. "Internal Increasing Returns to Scale and Economic Growth," NBER Technical Working Papers 0336, National Bureau of Economic Research, Inc.
    5. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July.
    6. Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri R., 1997. "Capacity utilization and market power," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 123-140, November.
    7. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, pages 523-551.
    8. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November.
    9. Sergey Slobodyan, 1999. "Sunspot Fluctuations: A Way Out of a Development Trap?," Computing in Economics and Finance 1999 922, Society for Computational Economics.
    10. Xavier Raurich, 2001. "Indeterminancy and Government Spending in a Two-Sector Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 210-229, January.
    11. Desmet, Klaus & Parente, Stephen, 2009. "The Evolution of Markets and the Revolution of Industry: A Quantitative Model of England's Development, 1300-2000," CEPR Discussion Papers 7290, C.E.P.R. Discussion Papers.
    12. Kenneth Rogoff, 1995. "What Remains of Purchasing Power Parity?," Boston University - Institute for Economic Development 54, Boston University, Institute for Economic Development.
    13. Xavier Raurich-Puigdevall, 2000. "Global indeterminacy in an endogenous-growth model with public capital," Journal of Economics, Springer, pages 255-280.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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