IDEAS home Printed from https://ideas.repec.org/p/fce/doctra/1318.html
   My bibliography  Save this paper

Rethinking directed technical change with endogenous market structure

Author

Listed:
  • Lei Ji

    (Ofce sciences-po,skema Business school)

Abstract

I consider directed technical change in an economy where market structure is endogenous. Endogeneity of market structure leads to both theoretical and empirical implications that are substantially different from those in the existing literature and that in some cases are rather surprising. There are two dimensions of directed technical change: directed firm entry new firms enter the industry with higher returns and directed in-house research and development (R&D is higher in the industry with higher returns.). Directed firm entry responds to the industry market size effect and the price effect as in the existing literature. In sharp contrast to the existing literature, directed R&D depends on firm rather than industry market size. Furthermore, the firm’s market size is endogenous, and its response to economic conditions affect several results on the behavior of directed technical change. The endogeneity of firm size has generally been ignored in the previous literature. Directed technical change alters the relative demands for factors of production and leads to a change in relative factor returns. Directed firm entry changes relative factor returns through a social return to variety an externality, and directed RD changes relative factor returns through changes in relative factor productivities. Empirically, the second channel is the main force shaping relative factor productivities and hence relative factor returns. The model also includes fixed operating cost, which turns out to be important for the direction of RD and for the existence of balanced growth path BGP for the economy. The model provides a complete solution for the economy’s transition dynamics as well as its balanced growth path.

Suggested Citation

  • Lei Ji, 2013. "Rethinking directed technical change with endogenous market structure," Documents de Travail de l'OFCE 2013-18, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1318
    as

    Download full text from publisher

    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-18.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Nahuis, Richard & Smulders, Sjak, 2002. "The Skill Premium, Technological Change and Appropriability," Journal of Economic Growth, Springer, vol. 7(2), pages 137-156, June.
    2. Smulders, Sjak & de Nooij, Michiel, 2003. "The impact of energy conservation on technology and economic growth," Resource and Energy Economics, Elsevier, vol. 25(1), pages 59-79, February.
    3. Backus, David K. & Kehoe, Patrick J. & Kehoe, Timothy J., 1992. "In search of scale effects in trade and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 377-409, December.
    4. Daron Acemoglu & David Cutler & Amy Finkelstein & Joshua Linn, 2006. "Did Medicare Induce Pharmaceutical Innovation?," American Economic Review, American Economic Association, vol. 96(2), pages 103-107, May.
    5. Peretto, Pietro F, 1998. "Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
    6. Kiley, Michael T, 1999. "The Supply of Skilled Labour and Skill-Biased Technological Progress," Economic Journal, Royal Economic Society, vol. 109(458), pages 708-724, October.
    7. Minniti Antonio, 2006. "Multi-product Firms, R&D, and Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-46, December.
    8. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    9. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    10. Smulders, Sjak & van de Klundert, Theo, 1995. "Imperfect competition, concentration and growth with firm-specific R & D," European Economic Review, Elsevier, vol. 39(1), pages 139-160, January.
    11. Peretto, Pietro F., 2007. "Corporate taxes, growth and welfare in a Schumpeterian economy," Journal of Economic Theory, Elsevier, vol. 137(1), pages 353-382, November.
    12. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
    13. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
    14. Patrizio Pagano & Fabiano Schivardi, 2003. "Firm Size Distribution and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 255-274, June.
    15. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    16. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    17. Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
    18. Peretto, Pietro F, 1996. "Sunk Costs, Market Structure, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 895-923, November.
    19. Kamien,Morton I. & Schwartz,Nancy L., 1982. "Market Structure and Innovation," Cambridge Books, Cambridge University Press, number 9780521293853, March.
    20. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, vol. 12(4), pages 329-350, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Directed technical change.Endogenous market structure; Relative factor returns;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fce:doctra:1318. 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: (Francesco Saraceno). General contact details of provider: http://edirc.repec.org/data/ofcspfr.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.