Title: On the dependence of the growth rate on the elasticity of substitution in a network

Authors: Yury P. Martemyanov; Vladimir D. Matveenko

Addresses: Center for Market Studies and Spatial Economics, National Research University Higher School of Economics, Office K-203, b. 20, Myasnitskaya St., Moscow, 101000, Russia ' Department of Economics, National Research University Higher School of Economics, Office 123, b. 55/2, Sedova St., Saint Petersburg, 192171, Russia

Abstract: We consider the dependence of the growth rate on the elasticity of substitution within the framework of a model with the agents' mutual dependence. This model is interpreted as a network structure. The development is explained as the agents' increase in values in the dynamic system described by functions which display constant elasticity of substitution (CES). We investigate the cases of high and low complementarity of activities. In particular, we receive conditions allowing to identify the cases when the elasticity of substitution has a positive (negative) effect on the growth rate under high (low) complementarity of activities. Additionally, we analyse the influence of the individual agents' productivity on the growth rate. Finally, we give a potential generalisation of the model allowing for different growth rates of the agents.

Keywords: agglomeration dynamics; economic growth; elasticity of substitution; growth rate; Frobenius eigenvalue; network structure; externalities; production functions.

DOI: 10.1504/IJPMB.2014.065524

International Journal of Process Management and Benchmarking, 2014 Vol.4 No.4, pp.475 - 492

Available online: 28 Oct 2014 *

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