Homogeneity Masquerading as Variety: The Case of Horizontal Innovation Models

Abstract:     
The literature on horizontal innovation claims to analyse cases where unbounded endogenous growth comes from an increasing variety of intermediate goods. The present paper contends that a good sample of representative models in this literature share two essential assumptions regarding production technology, and that these assumptions together amount to assuming the homogeneity of various intermediate goods. In these models, there is no variety of intermediate goods to increase owing to R&D activities; what increases is a mass of a single homogeneous intermediate good.

Keywords: Horizontal innovation, Dixit-Stiglitz technology

JEL Classification: E13, O41

Accepted Paper Series