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The Quality Ladder and Product Variety: Larger Economies May Not Grow Faster

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  • Koichi Futagami
  • Yasushi Ohkusa

Abstract

This paper constructs an endogenous growth model that combines the quality ladder model and the variety expansion model. Firms enter an imitation race. After the imitation process, monopolistic competition prevails and a new innovation race begins. A successful firm, by inventing a higher quality product, can take over the entire market. However, the existence of a variety of products limits the price that the successful firm can charge. We show that the present model exhibits an inverted U‐shape relationship between market size and growth rate. Relatively large and small economies grow slowly while medium‐sized economies grow rapidly.

Suggested Citation

  • Koichi Futagami & Yasushi Ohkusa, 2003. "The Quality Ladder and Product Variety: Larger Economies May Not Grow Faster," The Japanese Economic Review, Japanese Economic Association, vol. 54(3), pages 336-351, September.
    • Handle: RePEc:bla:jecrev:v:54:y:2003:i:3:p:336-351
    DOI: 10.1111/1468-5876.00262
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    References listed on IDEAS

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    1. Alwyn Young, 1995. "Growth Without Scale Effects," NBER Working Papers 5211, National Bureau of Economic Research, Inc.
    2. Charles I. Jones, "undated". "Population and Ideas: A Theory of Endogenous Growth," Working Papers 98014, Stanford University, Department of Economics.
    3. Romer, Paul M, 1996. "Why, Indeed, in America? Theory, History, and the Origins of Modern Economic Growth," American Economic Review, American Economic Association, vol. 86(2), pages 202-206, May.
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    Cited by:

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    2. Wei Zhang & Jing Cheng & Xuemeng Liu & Zhangrong Zhu, 2023. "Heterogeneous industrial agglomeration, its coordinated development and total factor energy efficiency," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(6), pages 5511-5537, June.
    3. Arup Mitra, 2011. "Urbanization in India: Evidence on Agglomeration Economies," Working Papers id:4394, eSocialSciences.
    4. Yuan, Huaxi & Feng, Yidai & Lee, Chien-Chiang & Cen, Yan, 2020. "How does manufacturing agglomeration affect green economic efficiency?," Energy Economics, Elsevier, vol. 92(C).
    5. Kizuku Takao, 2014. "Dynamic effects of anticipated and temporary tax changes in a R&D-based growth model," ISER Discussion Paper 0913, Institute of Social and Economic Research, The University of Osaka.
    6. Zhifen Xu & Yikang Guo & Rongsheng Peng, 2024. "Effectiveness Test of Rural Revitalization Demonstration Policy on Rural Economic Development in China: Analysis of DID Based on the Data of Henan Province in China," SAGE Open, , vol. 14(2), pages 21582440241, May.
    7. Ziqi Yin & Jianzhai Wu, 2021. "Spatial Dependence Evaluation of Agricultural Technical Efficiency—Based on the Stochastic Frontier and Spatial Econometric Model," Sustainability, MDPI, vol. 13(5), pages 1-12, March.
    8. Du, Congcong & Cao, Yunhui & Ling, Yushan & Jin, Zebin & Wang, Shibo & Wang, Daoping, 2024. "Does manufacturing agglomeration promote green productivity growth in China? Fresh evidence from partially linear functional-coefficient models," Energy Economics, Elsevier, vol. 131(C).
    9. Jing Zhao & Na Chen & Zhen Jin, 2025. "The more centralized the spatial structure is, the greater the economic growth? Evidence from urban agglomerations in western China," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-16, December.
    10. Zheng, Jianghuai & Zhang, Lili & Wang, Yu, 2010. "The underdevelopment of service industry in China: an empirical study of cities in Yangtze River Delta," MPRA Paper 33125, University Library of Munich, Germany, revised Jun 2011.
    11. Jianghuai Zheng & Lili Zhang & Yu Wang, 2011. "The underdevelopment of service industry in china: An empirical study of cities in Yangtze River Delta," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(3), pages 413-446, September.
    12. Siliang Guo & Heng Ma, 2021. "Does industrial agglomeration promote high‐quality development of the Yellow River Basin in China? Empirical test from the moderating effect of environmental regulation," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2040-2070, December.
    13. Brach, Juliane & Kappel, Robert, 2009. "Global Value Chains, Technology Transfer and Local Firm Upgrading in Non-OECD Countries," GIGA Working Papers 110, GIGA German Institute of Global and Area Studies.

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