Emergence of New Industries and Endogenous Growth Cycles
56 Pages Posted: 3 Aug 2004
Date Written: June 2000
This paper constructs a growth model in which monopolistically competing firms choose the characteristic of their own product from an unbounded product space. While consumers wish to satisfy various needs by purchasing a diverse range of goods, production costs are lower for those goods that are more similar to existing ones because of spillover effects in the learning-bydoing process. The dynamic interaction of these centrifugal and centripetal forces on the product space leads to sporadic emergence and disappearance of industries, which is a source of cyclical fluctuations in the macroeconomic growth rate.
Keywords: Product differentiation, learning-by-doing with spillover, emergence of industries, growth cycles
JEL Classification: O41, E32, L16
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