This work introduces firm heterogeneity in a dynamic model of growth with both process and product innovations. Deliberate R&D is undertaken to create new varieties of products that contribute to welfare through consumer's love of variety. Long-run growth is fuelled by process innovations that...

In explaining economic phenomena, economic analysis concentrates on selected influences and fixes the host of other factors under a ceteris paribus clause. This view, which goes back to Alfred Marshall (1842-1924), is developed in the first part of the book. Aggregation is viewed as a particular...