Template-Type: ReDIF-Paper 1.0

Author-Name: Lutz Arnold 
Author-X-Name-First: Lutz
Author-X-Name-Last: Arnold


Author-Name: Christian Bauer 
Author-X-Name-First: Christian
Author-X-Name-Last: Bauer

Title: 	Some Second Thoughts on Monopolistic Distortions and Endogenous Growth
	
Abstract: 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 increasing
product 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 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. 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.
Length:  20 pages
Creation-Date:  2008-02
File-URL: http://www.bgpe.de/texte/DP/041_arnold_bauer.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: 041
Classification-JEL: F15, F43, O31, O34, O41
Keywords: endogenous growth, competition, deregulation, poverty trap, trade liberalization
Handle: RePEc:bav:wpaper:041_arnold_bauer