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Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development

  • Ciccone, A.
  • Matsuyama, K.

We use a dynamic monopolistic competition model to show that an economy that inherits a small range of specialized inputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor intensive technology, which in turn implies a small inducement to introduce new intermediate inputs. The start--up costs, which make the intermediate inputs producers subject to dynamic increasing returns, and pecuniary externalities that result from the factor substitution in the final goods sector, play essential roles in the model.

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Paper provided by Stockholm - International Economic Studies in its series Papers with number 533.

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Length: 33 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:stocin:533
Contact details of provider: Postal: UNIVERSITY OF STOCKHOLM, INSTITUTE FOR INTERNATIONAL ECONOMIC STUDIES, S- 106 91 STOCKHOLM SWEDEN.
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  12. Kiminori Matsuyama, 1993. "Modeling Complementarity in Monopolistic Competition," Discussion Papers 1028, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Alwyn Young, 1993. "Substitution and Complementarity in Endogenous Innovation," NBER Working Papers 4256, National Bureau of Economic Research, Inc.
  14. Bosch, A. & Sunder, S., 1994. "Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium," GSIA Working Papers 1994-11, Carnegie Mellon University, Tepper School of Business.
  15. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
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  26. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  27. Matsuyama, K., 1993. "Modelling Complementary in Monopolistic Competition," Papers 534, Stockholm - International Economic Studies.
  28. Kiminori Matsuyama, 1997. "Complementarity," Discussion Papers 1183, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  29. Steven N. Durlauf & Paul A. Johnson, 1992. "Local Versus Global Convergence Across National Economies," NBER Working Papers 3996, National Bureau of Economic Research, Inc.
  30. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  31. Matsuyama, Kiminori, 1992. "The market size, entrepreneurship, and the big push," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 347-364, December.
  32. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
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