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

Author

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  • 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.

Suggested Citation

  • Alberto Bucci & Vladimir Matveenko, 2017. "Horizontal differentiation and economic growth under non-CES aggregate production function," Journal of Economics, Springer, vol. 120(1), pages 1-29, January.
  • Handle: RePEc:kap:jeczfn:v:120:y:2017:i:1:d:10.1007_s00712-016-0497-1
    DOI: 10.1007/s00712-016-0497-1
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    1. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.

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    More about this item

    Keywords

    Endogenous growth; Horizontal differentiation; Non-CES production functions; Variable markups;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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