Competition versus Monopolistic Competition by Integrating Solow-Uzawa and Dixit-Stiglitz

This paper builds a neoclassical growth model with monopolistic competition and perfect competition. The paper synthesizes the basic economic mechanisms in neoclassical growth theory and monopolistic competition within a compact framework. The economic structure is based on the SolowUzawa growth models. We model monopolistic competition on basis of the Dixit-Stiglitz model. This paper makes a unique contribution to growth theory by making deviations from the traditional approaches in household behavior in monopolistic competition literature and markets in neoclassical growth theory. We develop and then show behavior of the model by simulation. The calibration identifies a stable unique equilibrium point. The motion of the economy is plotted. We also studies comparative dynamic processes due to changes in degree of specialization, unit labor requirement for production of intermediates, output elasticity of intermediate inputs, propensity to save, propensity to consume service, and human capital.