NONERGODIC ECONOMIC-GROWTH

This paper explores the role of complementarities and incomplete markets in economic growth. We analyze the evolution of an economy composed of a countable set of industries. Individual industries exhibit non-convexities in production and are linked by localized technological complementarities. These complementarities, when strong enough, produce multiple equilibria in long-run economic activity. The equilibria have a simple probabilistic structure that demonstrates how local interactions can affect the aggregate equilibrium. The model generates interesting cross-sectional and intertemporal dynamics as coordination problems become the source of aggregate and individual industry volatility. The model also illustrates how the growth of leading sectors can cause a takeoff to a high aggregate production equilibrium.