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Three Theorems on Growth and Competition

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  • Arnold, Lutz G.
  • Bauer, Christian J.

Abstract

This paper proves three theorems on growth and competition in a standard increasing variety endogenous growth model and draws conclusions for second-best competition policies. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though another (saddle-point stable) steady state with positive growth exists if the initial share of "cheap" competitive markets is sufficiently high, as this implies a relatively low demand for "expensive" innovative goods. Third, such a "no-growth trap" may happen in a world economy made up of several countries engaged in free trade with each other. As for competition policy, this implies that growth-enhancing policies maybe misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term. In diesem Papier werden drei Theoreme zu Wachstum und Wettbewerb in einem Standard-Varietäten-Wachstumsmodell bewiesen und Rückschlüsse für zweitbeste Wettbewerbspolitiken gezogen. Erstens kann kein Wachstum besser sein als geringes Wachstum, weil auch geringe positive Wachstumsraten möglicherweise beträchtliche statische Wohlfahrtsverluste erfordern. Zweitens kann die Ökonomie gegen einen Steady State mit Null-Wachstum konvergieren obwohl ein anderer (sattelpunkt-stabiler) Steady State mit positivem Wachstum existiert, wenn der anfängliche Anteil "billiger", kompetitiver Märkte hinreichend groß ist, da dies eine relativ geringe Nachfrage nach "teueren", innovativen Produkten impliziert. Drittens kann eine solche "Null-Wachstumsfalle" in einer Welt-Ökonomie auftreten, die aus mehreren Ländern besteht, die untereinander durch freien Handel verbunden sind. Für die Wettbewerbspolitik folgt, dass wachstumsfördernde Maßnahmen möglicherweise fehlgeleitet sein können und schnelle Deregulierung und schnelle Handelsliberalisierung potentiell zu langfristiger Stagnation führen können.

Suggested Citation

  • Arnold, Lutz G. & Bauer, Christian J., 2007. "Three Theorems on Growth and Competition," University of Regensburg Working Papers in Business, Economics and Management Information Systems 423, University of Regensburg, Department of Economics.
    • Handle: RePEc:bay:rdwiwi:812
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    References listed on IDEAS

    as
    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    2. Tang, Paul J. G. & Walde, Klaus, 2001. "International competition, growth and welfare," European Economic Review, Elsevier, vol. 45(8), pages 1439-1459, August.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March.
    5. Lutz Arnold, 2007. "A generalized multi-country endogenous growth model," International Economics and Economic Policy, Springer, vol. 4(1), pages 61-100, April.
    6. Christian Bauer, 2006. "Competition in an Increasing Variety Growth Model," Working Papers 001, Bavarian Graduate Program in Economics (BGPE).
    7. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Endogenes Wirtschaftswachstum ; Wettbewerb ; Deregulierung; Armutsfalle ; Handelsliberalisierung; endogeneous growth ; competition ; deregulation ; poverty trap ; trade liberalization;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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