Start-up costs and pecuniary externalities as barriers to economic development

Antonio Ciccone and Kiminori Matsuyama

No 83, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition 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 turns implies a small inducement to introduce new intermediate products. The start-up costs, which make the intermediate goods 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.

Keywords: Economic; development (search for similar items in EconPapers)
Date: 1993
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Start-up costs and pecuniary externalities as barriers to economic development (1996)
Working Paper: Start-up costs and pecuniary externalities as barriers to economic development (1995)
Working Paper: Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development (1993)
Working Paper: Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development (1993)
Working Paper: Start-up Costs and Pecuniary Externalities as Barriers to Economic Development (1992)
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