Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-23T07:04:09.419Z Has data issue: false hasContentIssue false
  • English
  • Français

ASSET BUBBLES AND ECONOMIC GROWTH UNDER ENDOGENOUS MARKET STRUCTURE

Published online by Cambridge University Press:  28 September 2017

Kizuku Takao
Kizuku Takao*
Affiliation:
Aomori Public University
*
Address correspondence to: Kizuku Takao, Department of Economics, Aomori Public University, 153-4 Aza Yamazaki, Oaza Goushizawa Aomori City, Aomori 030-0196, Japan; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

By considering a simple endogenous growth model, we propose a new theoretical channel through which the presence of asset bubbles can promote economic growth. In the model economy, long-lived value-maximizing firms continuously improve the quality of their specific products through in-house research and development (R&D), while simultaneously new firms enter into the market. The key feature is endogenous market structure: The number of firms is endogenously determined, which leads to variation in firm size measured in terms of the scale of production at the level of an individual firm. The presence of asset bubbles unambiguously gives rise to larger firms. This allows in-house R&D expenditure to be spread over the greater numbers of goods that the firms produce, which can increase incentives to undertake in-house R&D.

Keywords

Asset BubblesEndogenous GrowthFirm SizeOverlapping Generations
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 6 , September 2019 , pp. 2338 - 2359
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The paper was previously circulated with the title “Growth effect of bubbles in a non-scale endogenous growth model with in-house R&D.” A part of this work was conducted while visiting the Institute of Economics, Academia Sinica. Financial support from the Strategic Young Researcher Overseas Visits Program for Accelerating Brain Circulation (JSPS) is gratefully acknowledged. I would like to express my sincere thanks to the two anonymous referees, Koichi Futagami, Ching-Chong Lai, Been-Lon Chen, and Pietro Peretto for beneficial discussions and suggestions. I would also like to thank Katsunori Yamada, Kei Nanamiya, Takayuki Oishi, and the participants at the 2013 Annual Autumn Meeting of the Japanese Economic Association at the University of Kanagawa, the 2014 Asia Meeting of the Econometric Society in Taipei, the 2015 Summer Workshop on Economic Theory in Otaru, and KIER-joint workshop at Kochi-Tech University. This work was supported by JSPS KAKENHI Grant Number 15H06524. All remaining errors are mine.

References

REFERENCES

Acemoglu, Daron and Cao, Dan (2015) Innovation by entrants and incumbents. Journal of Economic Theory 157, 255–294.Google Scholar
Adams, James D. and Jaffe, Adam B. (1996) Bounding the effects of R&D: An investigation using matched establishment-firm data. RAND Journal of Economics 27, 700–721.Google Scholar
Aghion, Philippe and Howitt, Peter (1992) A model of growth through creative destruction. Econometrica 60, 323–351.Google Scholar
Aghion, Philippe and Howitt, Peter (1998) Endogenous Growth Theory. Cambridge, MA: The MIT Press.Google Scholar
Ang, James B. and Madsen, Jakob B. (2011) Can second-generation endogenous growth models explain the productivity trends and knowledge production in the Asian miracle economies?. Review of Economics and Statistics 93, 1360–1373.Google Scholar
Bartelsman, Eric J. and Doms, Mark (2000) Understanding productivity: Lessons from longitudinal microdata. Journal of Economic Literature 38, 569–594.Google Scholar
Basco, Sergi (2014) Globalization and financial development: A model of the dot-Com and the housing bubbles Journal of International Economics 92, 78–94.Google Scholar
Benhabib, Jess and Peril, Roberto (1994) Uniqueness and indeterminacy: On the dynamics of endogenous growth. Journal of Economic Theory 63, 113–142.Google Scholar
Blanchard, Olivier J. (1985) Debts, deficits, and finite horizons. Journal of Political Economy 93, 223–247.Google Scholar
Chu, Angus C. and Ji, Lei (2016) Monetary policy and endogenous market structure in a schumpeterian economy. Macroeconomic Dynamics 20, 1127–1145.Google Scholar
Cohen, Wesley M. and Klepper, Steven (1996) A reprise of size and R&D. Economic Journal 106, 925–951.Google Scholar
Dinopoulos, Elias and Thompson, Peter (1998) Schumpeterian growth without scale effects. Journal of Economic Growth 3, 313–335.Google Scholar
Farhi, Emmanuel and Tirole, Jean (2012) Bubbly liquidity. Review of Economic Studies 79, 678–706.Google Scholar
Foster, Lucia, Haltiwanger, John C. and Krizan, C. J. (1998) Aggregate Productivity Growth: Lessons from Microeconomic Evidence. NBER working paper 6803, National Bureau of Economic Research.Google Scholar
Futagami, Koichi and Shibata, Akihisa (2000) Growth effects of bubbles in an endogenous growth model. Japanese Economic Review 51, 221–235.Google Scholar
Grossman, Gene M. and Helpman, Elhanan (1991) Innovation and Growth in the Global Economy. Cambridge, MA: The MIT Press.Google Scholar
Grossman, Gene M. and Yanagawa, Noriyuki (1993) Asset bubbles and endogenous growth. Journal of Monetary Economics 31, 3–19.Google Scholar
Ha, Joonkyung and Howitt, Peter (2007) Accounting for trends in productivity and R&D: A Schumpeterian critique of semi-endogenous growth theory. Journal of Money, Credit and Banking 39, 733–774.Google Scholar
Hirano, Tomohiro and Yanagawa, Noriyuki (2017) Asset bubbles, endogenous growth, and financial frictions. Review of Economic Studies 84, 406–443.Google Scholar
Howitt, Peter (1999) Steady endogenous growth with population and R & D inputs Growing. Journal of Political Economy 107, 715–730.Google Scholar
Jones, Charles I. (1995) Time series tests of endogenous growth models. Quarterly Journal of Economics 110, 495–525.Google Scholar
King, Ian and Ferguson, Don (1993) Dynamic inefficiency, endogenous growth, and ponzi Games. Journal of Monetary Economics 32, 79–104.Google Scholar
Kunieda, Takuma (2014) A note on the crowd-in effect of asset bubbles in the perpetual youth model. Mathematical Social Science 72, 50–54.Google Scholar
Kunieda, Takuma and Shibata, Akihisa (2016) Asset bubbles, economic growth, and a self-fulfilling financial crisis. Journal of Monetary Economics 82, 70–84.Google Scholar
Laincz, Christopher A. and Peretto, Pietro F. (2006) Scale effects in endogenous growth theory: An error of aggregation not specification. Journal of Economic Growth 11, 263–288.Google Scholar
Martin, Alberto and Ventura, Jaume (2012) Economic growth with bubbles. American Economic Review 102, 3033–3058.Google Scholar
Olivier, Jacques (2000) Growth-enhancing bubbles. International Economic Review 41, 133–151.Google Scholar
Pagano, Patrizio and Schivardi, Fabiano (2003) Firm size distribution and growth. Scandinavian Journal of Economics 105, 255–274.Google Scholar
Peretto, Pietro F. (1998) Technological change and population growth. Journal of Economic Growth 3, 283–311.Google Scholar
Peretto, Pietro F. (2007a) The manhattan metaphor. Journal of Economic Growth 12, 329–350.Google Scholar
Peretto, Pietro F. (2007b) Corporate taxes, growth and welfare in a Schumpeterian economy. Journal of Economic Theory 137, 353–382.Google Scholar
Peretto, Pietro F. (2011) The growth and welfare effects of deficit-financed dividend tax cuts. Journal of Money, Credit and Banking 43, 835–869.Google Scholar
Peretto, Pietro F. (2015) From Smith to Schumpeter: A theory of take-off and convergence to sustained growth. European Economic Review 78, 1–26.Google Scholar
Romer, Paul M. (1990) Endogenous technological change. Journal of Political Economy 98, S71–S102.Google Scholar
Saint-Paul, Gilles (1992) Fiscal policy in an endogenous growth model. Quarterly Journal of Economics 107, 1234–1259.Google Scholar
Tirole, Jean (1985) Asset bubbles and overlapping generation. Econometrica 53, 1071–1100.Google Scholar
Weil, Philippe (1989) Overlapping families of infinitely lived agents. Journal of Public Economics 38, 183–198.Google Scholar
Young, Alwyn (1998) Growth without scale effects. Journal of Political Economy 106, 41–63.Google Scholar