Taste for variety: Model of Grossman and Helpman.

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Variety expansionEquilibriumSteady state conditions◮ The necessary conditions for convergence of the model to thesteady state growth path (or BGP) are:p X1 = n(a LX1 /a Ln1 );p X2 = n(a LX2 /a Ln2 ). (32)◮ These are conditions on prices of middle products (all of them)as function of relative labour productivities in both countries;◮ These conditions imply that relative prices of middle productsare constant along the convergent path;◮ This implies that relative wages and relative final goods pricesare also constant;◮ Then expenditure shares s i are also fixed.
Variety expansionEquilibriumBalanced growth rates◮ Denote by g the growth rate of the number of productsworldwide:g(t) =n(t)/n(t) ˙ = K(t)/K(t); ˙(33)since knowledge grows in the 1-to-1 proportion to the numberof products;◮ Then prices of middle products (and all other prices) alsogrow at this rate:p X1 ˙ /p X1 = p X2 ˙ /p X2 = w˙1 /w 1 = g. (34)
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Taste for variety: Model of Grossman and Helpman.

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