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Horizontal differentiation and economic growth under non-CES aggregate production function

Listed author(s):
  • Alberto Bucci

    ()

    (University of Milan)

  • Vladimir Matveenko

    (National Research University Higher School of Economics)

Abstract We present a model of economic growth driven by horizontal innovation in which, unlike the existing literature, the final output sector employs a non-specified, non-CES, additive production function. Our motivation in conducting such analysis is based on the recognition that the use of a CES aggregate production function in the final output sector leads to the unrealistic conclusion that the gross markup of price over marginal costs set in the monopolistically-competitive intermediate sector is constant. We derive necessary and sufficient conditions for an equilibrium with perfect competition in the final output market to exist even in the presence of a non-CES technology. These conditions generalize the usual properties of the CES case. We also analyze the long-run relation between economic growth and variable markups.

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File URL: http://link.springer.com/10.1007/s00712-016-0497-1
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 120 (2017)
Issue (Month): 1 (January)
Pages: 1-29

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Handle: RePEc:kap:jeczfn:v:120:y:2017:i:1:d:10.1007_s00712-016-0497-1
DOI: 10.1007/s00712-016-0497-1
Contact details of provider: Web page: http://www.springer.com

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