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Basic Stochastic Dynamic Systems of Growth and Trade

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  • Jensen, Bjarne S
  • Wang, Chunyan

Abstract

Uncertainties are intrinsic features of dynamic economic systems, and this paper considers the dynamic implications of factor endowment (labor, capital) uncertainties for a small growing trading economy. The stochastic growth models presented extend the open neoclassical two-sector growth model (Deardorff) to a stochastic environment in continuous time, and extend the diffusion dynamics of one-sector growth models (Merton; Bourguignon) to a trading two-sector economy. It is demonstrated that the basic propositions of deterministic steady-state growth and endogenous growth theory, under some specifications and certain parametric restrictions, are preserved within a stochastic framework. Copyright 1999 by Blackwell Publishing Ltd.

Suggested Citation

  • Jensen, Bjarne S & Wang, Chunyan, 1999. "Basic Stochastic Dynamic Systems of Growth and Trade," Review of International Economics, Wiley Blackwell, vol. 7(3), pages 378-402, August.
    • Handle: RePEc:bla:reviec:v:7:y:1999:i:3:p:378-402
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    Cited by:

    1. Bjarne S. Jensen, 2004. "Pareto Efficiency, Relative Prices, and Solutions to CGE Models," DEGIT Conference Papers c009_006, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Bjarne S. Jensen, 2003. "Walrasian General Equilibrium Allocations and Dynamics in Two‐Sector Growth Models," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 53-87, February.
    3. Bjarne S. Jensen & Mogens E. Larsen, 2005. "General Equilibrium Dynamics of Multi-Sector Growth Models," DEGIT Conference Papers c010_003, DEGIT, Dynamics, Economic Growth, and International Trade.
    4. Clemens Christiane, 2009. "Stochastic Growth and Factor Income Risk," German Economic Review, De Gruyter, vol. 10(4), pages 422-447, December.
    5. Bjarne Jensen & Mogens Larsen, 2005. "General equilibrium dynamics of multi-sector growth models," Journal of Economics, Springer, vol. 86(1), pages 17-56, December.
    6. Bjarne Jensen & Mogens Larsen, 2005. "General equilibrium dynamics of multi-sector growth models," Journal of Economics, Springer, vol. 10(1), pages 17-56, December.
    7. Robert Feicht & Wolfgang Stummer, 2010. "Complete Closed-form Solution to a Stochastic Growth Model and Corresponding Speed of Economic Recovery preliminary," DEGIT Conference Papers c015_041, DEGIT, Dynamics, Economic Growth, and International Trade.
    8. Amilon, Henrik & Bermin, Hans-Peter, 2003. "Welfare effects of controlling labor supply: an application of the stochastic Ramsey model," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 331-348, November.

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