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Market Failures and Government Failures in the Model of Transition from Stagnation to Growth

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  • Veselov, D.

    (National Research University - Higher School of Economics, Moscow, Russia)

Abstract

The paper provides a framework for analysis of optimal growth enhancing policy in the economy with market and government failures. It develops an endogenous growth model with strategic complementarities between R&D investments of firms and investments in training of households. The model generates two possible long-run equilibriums: no-growth poverty trap equilibrium and stable sustainable growth equilibrium. In the extended version of the model with government failures we assume that some part of government revenue is expropriated by rent seeking agents. With these conditions we analyze the possibility of transition from stagnation to growth induced by government investment subsidies and other factors.

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Bibliographic Info

Article provided by New Economic Association in its journal Journal of the New Economic Association.

Volume (Year): (2011)
Issue (Month): 12 ()
Pages: 24-39

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Handle: RePEc:nea:journl:y:2011:i:12:p:24-39

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Related research

Keywords: poverty trap; endogenous growth theory; human capital; rent seeking;

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  1. Barham, V. & Boadway, R. & Marchand, M. & Pestieau, P., . "Education and the poverty trap," CORE Discussion Papers RP -1173, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  4. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  5. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  6. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03.
  7. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, December.
  8. Mehlum,H. & Moene,K. & Torvik,R., 2000. "Predator or prey? : parasitic enterprises in economic development," Memorandum 27/2000, Oslo University, Department of Economics.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Goodfriend, Marvin & McDermott, John, 1995. "Early Development," American Economic Review, American Economic Association, vol. 85(1), pages 116-33, March.
  11. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
  12. Oded Galor, 2005. "Unified Growth Theory," Development and Comp Systems 0504001, EconWPA.
  13. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  14. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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Cited by:
  1. Balatsky, Ye., 2012. "Technological Diffusion and Investment Decision," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 10-34.

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