IDEAS home Printed from https://ideas.repec.org/p/duk/dukeec/95-51.html
   My bibliography  Save this paper

Investment in Knowledge and Capital in Oligopoly: Balanced Growth, Poverty Traps and Indeterminancy

Author

Listed:
  • Peretto, Pietro F.

Abstract

In industrial economies, firms build their market position by consistently investing in R&D over time and accumulating knowledge protected by secrecy, patents and other appropriability devices. To explore the macroeconomic implications of this fact, I construct an economy where oligopolistic firms establish in- house R&D programs in order to produce a continuous flow of cost-reducing (incremental) innovations that increase factor productivity, reduce production costs, and allow firms to expand sales (and therefore the capital stock) by offering lower prices. Recent models of capital accumulation in imperfect markets show that multiple equilibria are possible even in the absence of externalities when monopolistic markups are endogenous. This model shares this property. In symmetric equilibrium, markups depend on the (endogenous) number of firms and induce a non-monotonic relationship between the rate of return to investment and the capital stock. This generates multiple equilibria. There exist a threshold steady state from where the economy converges either to a poverty trap or to a balanced growth path exhibiting properties consistent with Kaldor's stylized facts. These steady states are locally determinate. Global indeterminacy is possible because a region of overlapping trajectories originating from the threshold steady state may exist. This calls attention to the role of expectations in coordinating the transition to the balanced growth path. This is driven by imbalances between the firms' stocks of capital and knowledge and exhibits properties consistent with the evidence on conditional convergence.

Suggested Citation

  • Peretto, Pietro F., 1995. "Investment in Knowledge and Capital in Oligopoly: Balanced Growth, Poverty Traps and Indeterminancy," Working Papers 95-51, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:95-51
    as

    Download full text from publisher

    File URL: http://www.econ.duke.edu/Papers/Abstracts/abstract.95.51.html
    File Function: main text
    Download Restriction: no

    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:duk:dukeec:95-51. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster). General contact details of provider: http://econ.duke.edu/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.