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The Market Size Effect in Endogenous Growth Reconsidered

Author

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  • Hélène Latzer

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEREC - Centre de recherche en économie - Université Saint-Louis - Bruxelles)

  • Kiminori Matsuyama

    (Northwestern University [Evanston])

  • Mathieu Parenti

    (ULB - Université libre de Bruxelles = Free University of Brussels)

Abstract

This paper aims at disentangling two effects of the labor supply size on long-run growth that are traditionally undistinguishable under preference homotheticity: a scale effect, and a market size effect. To reach this goal, we present two horizontal-innovation models of endogenous growth with non-homothetic preferences. We demonstrate in particular that in such set-ups, keeping the economy's total effective labor supply constant, a "richer" country (i.e., with higher labor productivity and a smaller labor force) grows faster than a "poorer" country (i.e., with lower labor productivity and a larger labor force), leading the two countries to diverge.

Suggested Citation

  • Hélène Latzer & Kiminori Matsuyama & Mathieu Parenti, 2018. "The Market Size Effect in Endogenous Growth Reconsidered," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01901266, HAL.
    • Handle: RePEc:hal:cesptp:halshs-01901266
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01901266v1
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    References listed on IDEAS

    as
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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • 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

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