Cross-industry tfp growth differences with asymmetric industries and the endogenous market structure

I develop a multi-industry endogenous growth model with the endogenous market structure. Industries are heterogeneous in production unit costs, research and development RD productivities, fixed operating costs and industry level market sizes. The endogenous market structure allows an empirically realistic and theoretically important determination of the individual firms’ market sizes and distinguishes the model from the previous literatures. There are two sets of results. First, the balanced growth rate depends positively on RD productivities and firm market size of both industries but not industry market size. Surprisingly, the steady state total factor productivity TFP level ratio between industry 1 and 2 depends negatively on RD productivity and fixed costs in industry 1 and positively on those parameters in industry 2. Second, industry differences in both TFP growth and R&D intensity mainly reflect differences in quality-adjusted gross profits and RD productivities. Such differences depend on RD productivities and fixed operating cost parameters in general equilibrium. The industry with a higher RD productivity and fixed cost has a lower TFP growth and research intensity compared to the other industry. Differences in production unit costs and industry level market sizes do not to contribute to cross-industry TFP growth differences. These results are substantially different from what is found in the existing literature. Model also offers novel explanations for directed technical change and structural change, and it offers a structure for analyzing the interaction between trade and growth.