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A note on variable markup, knowledge spillover, and multiple steady states in the variety expansion model

Published online by Cambridge University Press:  01 February 2023

Tadashi Morita*
Faculty of Economics, Kindai University, Higashiosaka, Japan


This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.

© The Author(s), 2023. Published by Cambridge University Press

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I would like to express sincere gratitude to an associate editor, an anonymous referee, Koichi Futagami, Juan Carlos Lopez, and Katsunori Yamada for their helpful comments. This work was supported by the JSPS KAKENHI Grant Number 20H01506, 21K01453, and 22K01436.


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