Arnold, Lutz G. and Bauer, Christian (2009) On the Growth and Welfare Effects of Monopolistic Distortions. Journal of Economics 97 (1), pp. 19-40.
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The most fundamental proposition about growth and competition is that there is a tradeoff between static welfare and long-term growth. This paper reconsiders this basic proposition in an expanding variety endogenous growth model with competitive markets for “old” innovative products and for a traditional good. We shed light on some implications of monopolistic distortions which tend to be ignored by standard models. 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 a locally 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. The policy implications are that growth-enhancing policies may be misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.
|Institutions:||Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Theoretische Volkswirtschaft (Prof. Dr. Lutz Arnold)|
|Keywords:||Endogenous growth - Competition - Deregulation - Poverty trap - Trade liberalization|
|Subjects:||300 Social sciences > 330 Economics|
|Refereed:||Yes, this version has been refereed|
|Created at the University of Regensburg:||Unknown|
|Deposited On:||28 Jun 2010 10:50|
|Last Modified:||28 Jun 2010 10:50|
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