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Growth without scale effects

Young, Alwyn (1998) Growth without scale effects. Journal of Political Economy, 106 (1). pp. 41-63. ISSN 0022-3808

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Abstract

An increase in the size (scale) of an economy increases the total quantity of rents that can be captured by successful innovators, which, in equilibrium, should lead to a rise in innovative activity. Conventional wisdom and the theoretical predictions of models of endogenous innovation suggest that this increased research effort should lead to more rapid growth. As noted by Charles Jones, this prediction is at odds with the postwar experience of the OECD, where the growth of the market has indeed led to an increased R & D effort that, however, has been translated into stagnat or declining growth rates. Drawing on the remarkable insights of the museum curator Seabury C. Gilfillan, this paper modifies models of endogenous innovation to allow for the possibility that a rise in the profitability of innovative activity could lead to an increased variety of differentiated solutions to similar problems. An increased variety of technologies (e.g., an increase in the number and types of contraceptives) will increase the level of utility of the average consumer. If, however, continued improvement of this increased variety of technologies requires increased research input, a rise in the scale of the market could raise the equilibrium quantity of R & D without increasing the economy's growth rate.

Item Type: Article
Official URL: http://www.jstor.org/action/showPublication?journa...
Additional Information: © 1998 by The University of Chicago
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C10 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Apr 2011 10:33
URL: http://eprints.lse.ac.uk/33901/

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