Intertemporal general equilibrium model with external increasing returns

In a path-breaking paper [7], J. S. Chipman proposed a concept of increasing returns resulting from external effects between the production process of different firms. Romer [18] successfully applied this idea to an optimal growth model and observed that the optimal path could grow without bound in contrast to a standard growth model with a decreasing returns to scale technology. In this paper, we show that under very general assumptions, there exists a competitive equilibrium which could grow without bound for the (discrete time version of) Romer model. (C) 1996 Academic Press, Inc.