Evidence on Growth, Increasing Returns and the Extent of the Market

Alberto F. Ades and Edward Glaeser

No 4714, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine two sets of economies, (19th century U.S. states and 20th century less developed countries) where growth rates are positively correlated with initial levels of development to document how these dynamic increasing returns operate. We find that open economies do not display a positive connection between initial levels and later growth; instead, closed economies do display this positive correlation (i.e. divergence). This evidence suggests that increasing returns operate by expanding the extent of the market (as in the big push theories of Murphy, Shleifer and Vishny (1989)). For U.S. states, we also find that larger markets enhance growth by increasing the division of labor. Among LDCs, while more diversified production increases growth, diversification is negatively associated with openness for the poorest economies (as in the quality ladder theories of Boldrin and Scheinkman (1988), Young (1991) and Stokey (1991)). However, and despite the negative effect that openness has on the diversity of production and, thus, on growth, we find that openness still substantially increases growth for these poorer economies.

JEL-codes: F43 O40 (search for similar items in EconPapers)
Date: 1994-04
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as Quarterly Journal of Economics, Vol. 114, no. 3 (August 1999): 1025-1045.

Downloads: (external link)
http://www.nber.org/papers/w4714.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:4714

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w4714

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().