A Simple Growth Model Based on Neoclassical Growth, Monopolistic Competition, and Walrasian General Equilibrium Theories

Abstract

The purpose of this study is to examine economic growth and income and wealth distribution on the basis of Walrasian general equilibrium theory, neoclassical growth theory, and Dixit-Stiglitz monopolistic competitive theory. It makes a unique contribution to the literature of economic growth with perfect competition and monopolistic competition by integrating the basic economic mechanisms in the Walrasian general equilibrium model, the Solow one-sector growth model, and the Dixit-Stiglitz model. The final goods sector in our approach is based on Solow’s one-sector growth model. The issues of distribution are referred to the Arrow-Debreu theory. The market mechanism of perfect competitive markets is based on traditional neoclassical growth theory. We described imperfect competition on the approach basically developed by Dixit and Stiglitz. The paper unifies these approaches by applying the utility function and the concept of disposable income proposed by Zhang. We also deviate from the DixitStiglitz by assuming that non-zero profits are distributed to households. We build and then simulate the model for a three-group economy. We examine the effects of changes in some parameters on transitory processes and long-term equilibrium structure.