Start-up Costs and Pecuniary Externalities as Barriers to Economic Development

• One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized unputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor instensive technology, which in turns implies a small inducement to introduce new intermediate products. The start-up costs, which make the indtermediate goods producers subject to dynamic increasing returns, and pecuniary externalities that result from the factor substitution in the final goods sector, play essential roles in the model.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

differentiated intermediate outputs

the Hicks-Allen Complementary

increasing returns due to specialization

roundabout production

multiple steady states

multiple equilibria

development traps and take-offs

endogenous growth

Economics

Nationalekonomi

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