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Transitional Dynamics in an Endogenous Growth Model with Heterogeneous Consumption Goods

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  • Jaime Alonso-Carrera
  • Jordi Caballé
  • Xavier Raurich

Abstract

We analyze the transitional dynamics of an endogenous growth model with heterogeneous consumption goods. In this model, convergence is driven by two different forces: the diminishing returns to capital and the growth of the relative price between physical and human capital. Because this second force arises only when heterogenous consumption goods are introduced, the transitional dynamics in this model exhibits two interesting differences with respect to the transitional dynamics in the standard two-sector growth model with a unique consumption good. First, the initial growth effect of a shock in one of the capital stocks may be the opposite to the one obtained in a model with a unique consumption good. Second, the consumption growth rate exhibits a non-monotonic behavior along the transition when the two forces have opposite growth effects.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c014_018.

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Length: 27 Pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:deg:conpap:c014_018

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Keywords: endogenous growth; consumption growth; transitional dynamics;

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  1. Jaime Alonso-Carrera & Xavier Raurich, 2007. "Growth, Sectoral Composition, And The Wealth Of Nations," CAMA Working Papers 2007-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Jaime Alonso-Carrera & Jordi Caball?Author-Email: jordi.caballe@uab.es & Xavier Raurich, . "Growth, Habit Formation, and Catching-up\ with the Joneses," UFAE and IAE Working Papers 497.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  4. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Working Papers UWEC-2004-09-P, University of Washington, Department of Economics, revised Jan 2004.
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