Journal of Economics

, Volume 120, Issue 1, pp 1–29 | Cite as

Horizontal differentiation and economic growth under non-CES aggregate production function

Article

Abstract

We present a model of economic growth driven by horizontal innovation in which, unlike the existing literature, the final output sector employs a non-specified, non-CES, additive production function. Our motivation in conducting such analysis is based on the recognition that the use of a CES aggregate production function in the final output sector leads to the unrealistic conclusion that the gross markup of price over marginal costs set in the monopolistically-competitive intermediate sector is constant. We derive necessary and sufficient conditions for an equilibrium with perfect competition in the final output market to exist even in the presence of a non-CES technology. These conditions generalize the usual properties of the CES case. We also analyze the long-run relation between economic growth and variable markups.

Keywords

Endogenous growth Horizontal differentiation Non-CES production functions Variable markups 

JEL Classification

C62 D43 L16 O33 O41 

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Copyright information

© Springer-Verlag Wien 2016

Authors and Affiliations

  1. 1.Department of Economics, Management and Quantitative Methods (DEMM)University of MilanMilanItaly
  2. 2.National Research University Higher School of EconomicsSt. PetersburgRussia

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