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Ciccone, Antonio
Matsuyama, Kiminori
Year of Publication: 
Series/Report no.: 
Discussion Paper No. 1031
One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized uinputs can be trapped into a lower stage of development. The limited availability of specilized inputs forces the final goods producers to use a labor intensive technology, which in turns implies a small inducement to introduce new intermediate products. The start-up costs, which make the intermediate goods producers subject to dynamic increasing returns, and pecuniary externalities that result from the facto rsubstitution in the final goods sector, play essential roles in the model.
Differentiated intermediate inputs
the Hicks-Allen Complementarity
Increasing returns to to specialization
Roundabout Production
Multiple steady states
Multiple equilibria
Development traps and takes-off
Endogenous growth
Document Type: 
Working Paper

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