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Horizontal differentiation and economic growth under non-CES aggregate production function

Alberto Bucci () and Vladimir Matveenko
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Vladimir Matveenko: National Research University Higher School of Economics

Authors registered in the RePEc Author Service: Владимир Матвеенко

Journal of Economics, 2017, vol. 120, issue 1, No 1, 29 pages

Abstract: Abstract We present a model of economic growth driven by horizontal innovation in which, unlike the existing literature, the final output sector employs a non-specified, non-CES, additive production function. Our motivation in conducting such analysis is based on the recognition that the use of a CES aggregate production function in the final output sector leads to the unrealistic conclusion that the gross markup of price over marginal costs set in the monopolistically-competitive intermediate sector is constant. We derive necessary and sufficient conditions for an equilibrium with perfect competition in the final output market to exist even in the presence of a non-CES technology. These conditions generalize the usual properties of the CES case. We also analyze the long-run relation between economic growth and variable markups.

Keywords: Endogenous growth; Horizontal differentiation; Non-CES production functions; Variable markups (search for similar items in EconPapers)
JEL-codes: C62 D43 L16 O33 O41 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00712-016-0497-1

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