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A Two-Country Model of Endogenous Growth

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  • Roger E. A. Farmer

    (UCLA)

  • Amartya Lahiri

    (Federal Reserve Bank of New York)

Abstract

We study the competitive equilibria of a two-country endogenous growth model in which the source of growth is the linearity of technology in reproducible inputs. We begin by showing that in a model with no externalities there is a unique equilibrium; however, there are multiple ways in which the social planner can allocate production plans across countries. We then introduce an externality to human capital and we show that the model has multiple equilibria that can be Pareto-ranked. In many of these equilibria there are perfectly foreseen discrete reallocations of capital from one country to another, accompanied by discrete jumps in growth rates. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2004.10.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 1 (January)
Pages: 68-88

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Handle: RePEc:red:issued:v:8:y:2005:i:1:p:68-88

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Related research

Keywords: Economic Development; Economic Growth; Open Economy Macroeconomics; Quantitative Dynamic General Equilibrium Analysis; Incomplete Markets.;

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References

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  1. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper, Federal Reserve Bank of Dallas 9324, Federal Reserve Bank of Dallas.
  2. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
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  6. Boldrin, Michele & Rustichini, Aldo, 1994. "Growth and Indeterminacy in Dynamic Models with Externalities," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 323-42, March.
  7. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two sector model of endogenous growth with human and physical capital," Research Paper, Federal Reserve Bank of Dallas 9303, Federal Reserve Bank of Dallas.
  8. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  9. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
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  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  12. Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992. "On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems," Economic Theory, Springer, Springer, vol. 2(1), pages 43-68, January.
  13. Farmer, Roger E A & Lahiri, Amartya, 2002. "Economic Growth in an Interdependent World Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3250, C.E.P.R. Discussion Papers.
  14. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  15. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  16. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  17. Ellen R. McGrattan, 1998. "A defense of AK growth models," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 13-27.
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Citations

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Cited by:
  1. Jaime Alonso-Carrera & Maria Jesus Freire-Seren & Baltasar Manzano, 2008. "Macroeconomic Effects From The Regional Allocation Of Public Capital Formation," CAMA Working Papers 2008-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Marian Leimbach & Klaus Eisenack, 2009. "A Trade Algorithm for Multi-Region Models Subject to Spillover Externalities," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 33(2), pages 107-130, March.
  3. Mino, Kazuo, 2008. "Financial integration and volatility in a two-country world," MPRA Paper 16953, University Library of Munich, Germany.
  4. Alonso-Carrera, Jaime & Freire-Serén, María Jesús & Manzano, Baltasar, 2009. "Macroeconomic effects of the regional allocation of public capital formation," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(5), pages 563-574, September.
  5. Farmer, Roger E A & Lahiri, Amartya, 2002. "Economic Growth in an Interdependent World Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3250, C.E.P.R. Discussion Papers.
  6. Fujisaki, Seiya, 2012. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," MPRA Paper 40023, University Library of Munich, Germany.
  7. Junko Doi & Kazuo Nishimura & Koji Shimomura, 2006. "A two-country dynamic model of international trade and endogenous growth: multiple balanced growth paths and stability," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 188, Research Institute for Economics & Business Administration, Kobe University.
  8. Fujisaki, Seiya, 2013. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 597-603.
  9. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers, Kyoto University, Institute of Economic Research 891, Kyoto University, Institute of Economic Research.
  10. Lee, Shun-Fa, 2010. "Tariff, Growth, and Welfare," MPRA Paper 27486, University Library of Munich, Germany.
  11. Leimbach, Marian & Edenhofer, Ottmar, 2007. "Technological spillovers within multi-region models: Intertemporal optimization beyond the Negishi approach," Economic Modelling, Elsevier, Elsevier, vol. 24(2), pages 272-294, March.
  12. Kazuo Mino, 2008. "Preference Structure and Volatility in a Financially Integrated World," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 08-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  13. Fujisaki, Seiya, 2012. "Interest Rate Control Rules and Macroeconomic Stability in a Heterogeneous Two-Country Model," MPRA Paper 37017, University Library of Munich, Germany.
  14. De, Supriyo, 2014. "Intangible capital and growth in the ‘new economy’: Implications of a multi-sector endogenous growth model," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 28(C), pages 25-42.

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