We develop a two-sector model of monopolistic competition with a differentiated intermediate good and variable elasticity of technological substitution. This setting proves to be well-suited to studying the nature and origins of external increasing returns. We disentangle two sources of scale economies: specialization and competition. The former depends only on how TFP varies with input diversity, while the latter is fully captured by the behavior of the elasticity of substitution across inputs. This distinction gives rise to a full characterization of the rich array of competition regimes in our model. The necessary and sufficient conditions for each regime to occur are expressed in terms of the relationships between TFP and the elasticity of substitution as functions of the input diversity. Moreover, we demonstrate that, despite the folk wisdom resting on CES models, specialization economies are in general neither necessary nor sufficient for external increasing returns to emerge. This highlights the profound and non-trivial role of market competition in generating agglomeration economies, endogenous growth, and other phenomena driven by scale economies.
Specialization vs. Competition : An anatomy of increasing returns to scale / A. Bucci, P. Ushchev. - In: JOURNAL OF ECONOMIC GEOGRAPHY. - ISSN 1468-2702. - (2020). [Epub ahead of print]
|Titolo:||Specialization vs. Competition : An anatomy of increasing returns to scale|
|Parole Chiave:||External Increasing Returns; Variable Elasticity of Substitution; Specialization Effects; Competition Effects|
|Settore Scientifico Disciplinare:||Settore SECS-P/01 - Economia Politica|
|Data di pubblicazione:||2020|
|Data ahead of print / Data di stampa:||2020|
|Appare nelle tipologie:||01 - Articolo su periodico|