Consumption Structure and the Pattern of Economic Growth

Abstract

This paper studies the relationship between consumption structure and economic growth by constructing a two-sector variety expanding model. We classify the goods into two groups based on difference in the elasticity of substitution, and consider how the change of consumption structure affects economic growth. We consider the change as shifts in demand from the goods having higher elasticity (more competitive) to the other (less competitive) goods. As a result, we find that the growth rate is U-shaped.