The Complex Interactions between Economic Growth and Market Concentration in a Model of Structural Change

42 Pages Posted: 5 Apr 2016

See all articles by Tommaso Ciarli

Tommaso Ciarli

SPRU, University of Sussex

Marco Valente

University of L'Aquila - Faculty of Economics

Date Written: January 31, 2015

Abstract

We study the relation between variety, market concentration, and economic growth, along different phases of economic development which entail a number of changes to the structure of production and consumption in the economy. We focus on three aspects of structural change, which are connected and are correlated to variety, market concentration, and economic growth: (i) product quality; (ii) firms’ mark-ups; and (iii) imitation of consumer preferences for price and quality. We model the interactions among several aspects of structural change such as firm size and hierarchical structure, innovation in capital vintages, the emergence of social classes, income distribution, and consumer preferences across and within classes. We find that market concentration has a significant and positive impact on economic growth only in the presence of sufficiently large demand. The strongest effects emerge in the presence of a more skewed firm size distribution and firms producing higher priced and higher quality goods. We find also that this effect is influenced strongly by different aspects of structural change. Changes in the behaviour (or income) of the less wealthy income classes is crucial as is investment in new capital vintages, and the emergence of diverse income classes with heterogeneous consumption preferences. In contrast, we find that supply side product variety, coeteris paribus, has no significant effect on growth.

Keywords: economic growth, structural change, market concentration, consumer dynamics, product variety, agent based simulations

JEL Classification: O11, O41, O33, C63

Suggested Citation

Ciarli, Tommaso and Valente, Marco, The Complex Interactions between Economic Growth and Market Concentration in a Model of Structural Change (January 31, 2015). SWPS 2016-06, Available at SSRN: https://ssrn.com/abstract=2756901 or http://dx.doi.org/10.2139/ssrn.2756901

Tommaso Ciarli (Contact Author)

SPRU, University of Sussex ( email )

Jubilee Building
University of Sussex
Falmer, Brighton, Sussex BN1 9SL
United Kingdom

Marco Valente

University of L'Aquila - Faculty of Economics ( email )

Piazza del Santuario, 19
Roio Poggio, AQ, 67040
Italy

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