Investment, R&d, and Long-Run Growth (Paperback) (ISBN-13: 9783540425281)

In the 1990s, growth theory has incorporated imperfect competition in its investigations. This innovation has proven to be seminal: Cleviating from growth models with perfect competition, the new framework featured forward- looking entrepreneurs. Firms maximize profits intertemporarily, i. e. their in- vestment leads to instantaneous sunk costs and offers flows of future profits. Firms finance this investment by launching shares. The capital market is per- fectly competitive, implying that the return on a share is equal to the return on a bond. As opposed to the capital market, the goods market is imperfectly competitive. As a result of investment, firms enjoy market power. That is, firms may acquire the capability to provide a product that is differentiated in, e. g., styling, technology, accessibility, or reputation. The launch of a dif- ferentiated product allows to capture a market niche, and successful firms may price above marginal cost. The resulting profit flows are channelled to the firms' shareholders. The introduction of monopolistic competition into growth theory is valuable: real world economies may be portrayed rather by such an imperfect competition framework than by a perfect competition approach. Starting with Romer (1990), in growth theory, modeling of imperfect competition has been notoriously bound to a focus on the impact of research and development (R&D) on economic growth. In the existing literature, growth-affecting investment is restricted to R&D investment.

Author: Dietmar Hornung
ISBN-10: 3540425284
ISBN-13: 9783540425281
Publisher: Springer
Language: English
Published: 09/11/2001
Pages: 196
Format: Paperback
Weight: 0.56lbs
Size: 8.50h x 5.50w x 0.46d