On capital increasing returns and long run growth in a model of overlapping generation

This contribution illustrates the role of an imperfectly competitive process of capital accumulation in the growth process. It emphasizes the central role of investment in long run outcomes. Whereas the final good sector is characterized by perfect competition, temporary monopolies take place in the capital good ones. These monopolies rest on an increasing returns property in the production technology that in turn results from dynamic intrasectoral externalities. The model is characterized by a sustained long-run growth path at a constant rate. This solution departs from the ones that have emerged in the recent literature because the growth rate of the capital stock and the growth rate of knowledge are not identical.