TY  - JOUR
AU  - Ciccone,Antonio
AU  - Matsuyama,Kiminori
TI  - Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4363
PY  - 1993
Y2  - May 1993
UR  - http://www.nber.org/papers/w4363
L1  - http://www.nber.org/papers/w4363.pdf
N1  - Author contact info:
Antonio Ciccone
Universitat Pompeu Fabra
E-Mail: antonio.ciccone@upf.edu

Kiminori Matsuyama
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8490
E-Mail: k-matsuyama@northwestern.edu
AB  - 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 inputs can be trapped into a lower stage of development. The limited availability of specialized 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 factor substitution in the final goods sector, play essential roles in the model.
ER  -