Innovation, Market Structure and Economic Growth

This paper presents a dynamic partial equilibrium model that endogenizes firms' investment decision on innovation: product innovation causes horizontal expansion growth, and process innovation causes vertical expansion growth. Market structure in different markets emerges as a consequence of different investment on innovation opportunities. Main variables that constrain this structure in a given market are the rate of scientific (basic) discoveries that permit innovation productivity, and the degree of substitution between varieties, together with the possible existence of scope economies.