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A two sector endogenous growth model with habit formation

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  • Hiraguchi, Ryoji

Abstract

In this paper, we study an endogenous growth model with physical and human capital in which consumption habits enter the utility function multiplicatively. We show that although the utility function with multiplicative habits is nonconcave and unbounded, an interior optimal growth path still exists, it is uniquely determined and it converges to a balanced growth path. We also find that habit formation in consumption lowers the convergence speed of the optimal path toward the balanced growth path.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 4 (April)
Pages: 430-441

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:430-441

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Habit formation Economic growth Human capital;

References

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Cited by:
  1. Gori, Luca & Sodini, Mauro, 2012. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," MPRA Paper 35942, University Library of Munich, Germany.

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