DP1052 Endogenous Growth and Poverty Traps in a Cournotian Model

Author(s): Jordi Galí, Fabrizio Zilibotti
Publication Date: November 1994
Keyword(s): Endogenous Growth, Endogenous Mark-ups, Multiple Equilibria
JEL(s): L13, O41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1052

We analyse the implications for the dynamics of capital accumulation of market power and endogenous demand elasticities, in an environment in which the latter are affected by the number of competitors in each industry. In equilibrium the interest rate increases as capital accumulates, even though the marginal product of capital is constant. Under standard assumptions both a steady-state and a balanced growth path exist, and the possibility of multiple equilibrium paths (for given initial conditions) arises. It is argued that the latter feature matches several empirical observations.