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Productive Consumption and Growth in Developing Countries

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  • Steger, Thomas M

Abstract

Productive consumption enables the satisfaction of current needs and increases the productive potential of labor. The productive-consumption hypothesis is of fundamental interest because it modifies the "harsh" intertemporal consumption tradeoff traditionally assumed. The incorporation of the productive-consumption hypothesis into a simple endogenous growth model reveals the following implications: (i) the possibility of a poverty-trap; (ii) the rule of optimal consumption turns into a modified Keynes-Ramsey rule; (iii) the (effective) IES is based on, inter alia, the technological opportunities to enhance human capital due to productive consumption; (iv) a rising saving rate; and (v) transitional dynamics to an asymptotic balanced-growth path. Copyright 2000 by Blackwell Publishing Ltd

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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 4 (2000)
Issue (Month): 3 (October)
Pages: 365-75

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Handle: RePEc:bla:rdevec:v:4:y:2000:i:3:p:365-75

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Cited by:
  1. Daitoh, Ichiroh, 2010. "Productive consumption and population dynamics in an endogenous growth model: Demographic trends and human development aid in developing economies," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 696-709, April.
  2. Steger, Thomas M., 2002. "Productive consumption, the intertemporal consumption trade-off and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 1053-1068, June.
  3. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  4. Saraswat, Deepak, 2008. "Towards a sustainable Growth story: A critical analysis of the fundamentals," MPRA Paper 12306, University Library of Munich, Germany.

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