Informative Middleman Service, Variety-Expansion and Long Run Growth
In reality, the intermediate firms not only conduct R&D but also provide informative middleman services to overcome the information cost generated by technological advancements. I incorporate the informative middleman services such as consulting, advertising, technical supporting, repair and maintenance into a variety-expansion model. I find that: (i) Activities of informative middleman influence the steady state growth rate. Given the technology spillover in the informative middleman sectors, the economy can sustain a higher economic growth rate; (ii) The growth of variety leads to the growth of informative middleman services per firm; (iii) Whether an economy may fall into development trap or cross threshold to provide informative middleman services depends on its market scale and the productivity of these services; (iv) The subsidy to informative middleman services can be viewed as a channel of policy intervention.
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