Quality Heterogeneity and Global Economic Growth

Bulent Unel () and Elias Dinopoulos ()
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Elias Dinopoulos: https://people.clas.ufl.edu/dinopoe/

Departmental Working Papers from Department of Economics, Louisiana State University

Abstract: This paper develops a fully-endogenous, variety-expansion growth model with firm- specifc quality heterogeneity, limit pricing, and an endogenous distribution of markups. Trade induces only firms with high-quality products to export, whereas firms with low- quality products serve only the domestic market. Trade liberalization, measured by a reduction in trade costs or a reduction in foreign-market entry costs, shifts resources from low-quality to high-quality products and intensifies the product market competi- tion. However, it has ambiguous effects on the average markup, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of international knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is ineffcient, and this leaves room for welfare-improving government intervention.

Date: 2009-06
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Journal Article: Quality heterogeneity and global economic growth (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:lsu:lsuwpp:2009-06

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