The Market Size Effect in Endogenous Growth Reconsidered

Hélène Latzer, Kiminori Matsuyama and Mathieu Parenti ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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.

Keywords: Divergence; Horizontal Innovation; Knowledge Spillover; Endogenous Growth; Balanced Growth Path; Variable price elasticity; Endogenous Markup; Nonhomotheticity; Direct Explicit Additivity; Indirect Explicit Additivity (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-gro
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01901266v1
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Published in 2018

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Related works:
Working Paper: The Market Size Effect in Endogenous Growth Reconsidered (2018)
Working Paper: The market Size Effect in Endogenous Growth Reconsidered (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01901266

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