Vertical separation versus vertical integration in an endogenously growing economy

Shu-hua Chang and Ching-chong Lai

International Review of Economics & Finance, 2016, vol. 44, issue C, 359-380

Abstract: This paper sets up an endogenous growth model with a learning-by-doing externality in capital accumulation under both vertical separation and vertical integration structures. Some major findings emerge from our analysis. First, an increase in monopoly power has a detrimental effect on the balanced growth rate. Second, a vertical integration structure leads to a more balanced economic growth rate than a vertical separation structure. Third, the first-best subsidy rates on labor income and capital income under a vertical separation regime are higher than those under a vertical integration regime. Finally, with the additional externality from productive government spending, the government may levy positive taxes on both labor income and capital income if the extent of the productive public spending externality is sufficiently high.

Keywords: Endogenous growth; Imperfect competition; Industrial structure; Vertical separation; Vertical integration (search for similar items in EconPapers)
JEL-codes: D43 O41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:44:y:2016:i:c:p:359-380

DOI: 10.1016/j.iref.2016.02.005

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