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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: kizukutakao@gmail.com.
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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 

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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.

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