Competition-led Endogenous Growth with Localized Technological Change

The paper airns to amend the standard monopolistic competition framework - and its endogenous growth extension - introducing both heterogeneity among producers and a form of 'Schumpeterian' competitive selection process. According to our view, the introduction of heterogeneity implies that the notion of a symmetric Nash long-run equilibrium solution has to be discarded. This amendment permits to appreciate the role played by preferences and technology in determining the degree of percistency of nominal shocks when the assumption of perfect foresight is abandoned. Furthermore, a trade-off between short run and long run neutrality is assessed. The revised model is then employed in providing some contents to a couple of stylized facts about long-run aggregate growth. Instead of being modelled as a continuous increase of the commodity space, growth is described as succesful R&D investments in decreasing production-cost technologies. Innovation and imitation processes are modelled as activities requiring different amounts of investment, whose outcome is uncertain both as regards the time it takes to occur and the amount of effective increase in productivity it allows. Furthermore, technological change is governed by localized spillovers, so that it can be analytically treated by means of a Markovian random fields' machinery. Preliminary results obtained through a 'Mean Field' approximation allows us to appreciate the influence that alternative assumptions on the nature of localization of technological change bear on the rate of growth of average productivity.