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Globalization, The Volatility Of Intermediate Goods Prices, And Economic Growth

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  • Bretschger, Lucas
  • Steger, Thomas

Abstract

We set up a dynamic stochastic model of a stylized economy comprising a final output sector (with traditional and modern firms) and an intermediate goods sector. It is shown that market integration reduces the volatility of the rate of return of capital invested in modern firms. The induced portfolio decision of households then leads to reallocation of capital from traditional to modern firms. Despite the presence of a reverse precautionary saving channel, the growth rate unambiguously increases due to the reallocation of capital. Empirical estimates for OECD countries confirm the theoretical results

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 17 (2013)
Issue (Month): 02 (March)
Pages: 402-430

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Handle: RePEc:cup:macdyn:v:17:y:2013:i:02:p:402-430_00

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  1. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2006. "How do trade and financial integration affect the relationship between growth and volatility?," Journal of International Economics, Elsevier, vol. 69(1), pages 176-202, June.
  2. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
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  6. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  7. Steger, Thomas M., 2005. "Stochastic growth under Wiener and Poisson uncertainty," Economics Letters, Elsevier, vol. 86(3), pages 311-316, March.
  8. Jörn Kleinert, 2003. "Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing, or Increasing Importance of MNE Networks?," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 464-482, 08.
  9. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
  10. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
  11. Warnock, Francis E., 2002. "Home bias and high turnover reconsidered," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 795-805, November.
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Citations

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Cited by:
  1. Hoffmann, Andreas & Schnabl, Gunther, 2011. "Symmetrische Regeln und asymmetrisches Handeln in der Geld- und Finanzpolitik," Working Papers 95, University of Leipzig, Faculty of Economics and Management Science.
  2. Quaas, Georg, 2012. "Ein Nelson-Winter-Modell der deutschen Volkswirtschaft," Working Papers 112, University of Leipzig, Faculty of Economics and Management Science.
  3. Simone Valente, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," CER-ETH Economics working paper series 06/53, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  4. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany.
  5. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2010. "Dynamically Optimal R\& D Subsidization," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-453, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Andreas Schäfer & Thomas Steger, 2011. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," CESifo Working Paper Series 3676, CESifo Group Munich.
  7. Quaas, Georg & Köster, Robert, 2012. "Ein Modell für die Wirtschaftszweige der deutschen Volkswirtschaft: Das "MOGBOT" (Model of Germany's Branches of Trade)," Working Papers 106, University of Leipzig, Faculty of Economics and Management Science.
  8. Simone Valente, 2006. "Intergenerational Transfers, Lifetime Welfare and Resource Preservation," CER-ETH Economics working paper series 06/55, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  9. Casajus, André, 2011. "Collusion, symmetry, and the Banzhaf value," Working Papers 99, University of Leipzig, Faculty of Economics and Management Science.
  10. Casajus, André & Hüttner, Frank, 2012. "Nullifying vs. dummifying players or nullified vs. dummified players: The difference between the equal division value and the equal surplus division value," Working Papers 110, University of Leipzig, Faculty of Economics and Management Science.
  11. Casajus, André & Hüttner, Frank, 2012. "Null players, solidarity, and the egalitarian Shapley values," Working Papers 113, University of Leipzig, Faculty of Economics and Management Science.
  12. Casajus, André, 2012. "Solidarity and fair taxation in TU games," Working Papers 111, University of Leipzig, Faculty of Economics and Management Science.
  13. Schnabl, Gunther & Zemanek, Holger, 2011. "Die Deutsche Wiedervereinigung und die europäische Schuldenkrise im Lichte der Theorie optimaler Währungsräume," Working Papers 94, University of Leipzig, Faculty of Economics and Management Science.

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