Some Second Thoughts on Monopolistic Distortions and Endogenous Growth
The most fundamental proposition about growth and competition is that there is a tradeoff between static welfare and long-term growth. This paper reconsiders this basic proposition in an increasing product variety endogenous growth model with competitive markets for “old” innovative products and for a traditional good. We shed light on some implications of monopolistic distortions which tend to be ignored by standard models. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though another (saddle-point stable) steady state with positive growth exists if the initial share of “cheap” competitive markets is sufficiently high, as this implies a relatively low demand for “expensive” innovative goods. Third, such a “no-growth trap” may happen in a world economy made up of several countries engaged in free trade with each other. The policy implications are that growth-enhancing policies may be misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hellwig, Martin & Irmen, Andreas, 2001.
"Endogenous Technical Change in a Competitive Economy,"
Journal of Economic Theory,
Elsevier, vol. 101(1), pages 1-39, November.
- Hellwig, Martin & Irmen, Andreas, 1999. "Endogenous technical change in a competitive economy," Papers 99-53, Sonderforschungsbreich 504.
- Hellwig, Martin & Irmen, Andreas, 1999. "Endogenous Technical Change in a Competitive Economy," Sonderforschungsbereich 504 Publications 99-53, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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