Creativity, Research, and Growth by Integrating Solow, Dixit-Stiglitz, and Romer

This chapter, Creativity, Research, and Growth by Integrating Solow, Dixit-Stiglitz, and Romer, models the production and consumption of middle goods with monopolistic competition by following the Dixit-Stiglitz model. Monopolistic competition is characterized by many firms that produce differentiated products. Products are differentiated from each other and are not perfect substitutes. It introduces research and endogenous knowledge based on Romer’s models. The paper is organized as follows. Section 14.1 constructs the growth model with trade returns to scale. Section 14.2 provides the dynamic properties of the model. Section 14.3 studies the effects of a rise in the variety of middle goods on the system. Section 14.4 shows how the system is affected when the elasticity of substitution between two varieties rises. Section 14.5 shows the impact of a rise in the labor cost parameter of the middle goods sector. Section 14.6 follows the motion when the propensity to save is enhanced. Section 14.7 sees what happens in the system when the final goods sector uses knowledge more effectively. Section 14.8 shows how an increase in the population changes the system's behavior. Section 14.9 shows the motion when the share of the profit spent on research is increased. Section 14.10 follows the motion of the system when the research sector becomes more creative. Section 14.11 examines how the system is affected when knowledge creation has stronger returns to scale.