Evidence on Growth, Increasing Returns and the Extent of the Market / Alberto F. Ades, Edward L. Glaeser.

Format:

Book

Author/Creator:

Ades, Alberto F.

Contributor:

National Bureau of Economic Research.

Glaeser, Edward L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4714.

NBER working paper series no. w4714

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

We examine two sets of economies, (19th century U.S. states and 20th century less developed countries) where growth rates are positively correlated with initial levels of development to document how these dynamic increasing returns operate. We find that open economies do not display a positive connection between initial levels and later growth; instead, closed economies do display this positive correlation (i.e. divergence). This evidence suggests that increasing returns operate by expanding the extent of the market (as in the big push theories of Murphy, Shleifer and Vishny (1989)). For U.S. states, we also find that larger markets enhance growth by increasing the division of labor. Among LDCs, while more diversified production increases growth, diversification is negatively associated with openness for the poorest economies (as in the quality ladder theories of Boldrin and Scheinkman (1988), Young (1991) and Stokey (1991)). However, and despite the negative effect that openness has on the diversity of production and, thus, on growth, we find that openness still substantially increases growth for these poorer economies.

Notes:

Print version record

April 1994.