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Economic Growth and Sectoral Change under Resource Reallocation Costs

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Author Info
Thomas M. Steger () (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH))

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Abstract

A general growth model with explicit resource reallocation costs is set up. A new feature is the property of hysteresis (i.e. a continuum of stationary equilibria) in closed-economy growth models. Employing a linear model the hysteresis range and the consequences for the long-run growth rate are determined analytically. The most important conclusions are the following: (1) An economy’s long-run position may depend critically on the initial intersectoral allocation pattern as well as on the efficiency of the resource reallocation sector; (2) if we interpret the resource reallocation sector as a specific part of the education sector, there is a straightforward possibility for the government to reduce the range of hysteresis and hence the dependence on initial conditions; (3) international trade is an important device to overcome the negative consequences of high resource reallocation costs for long-run growth.

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Publisher Info
Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series Economics working paper series with number 03/30.

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Length: 33 pages
Date of creation: Dec 2003
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Handle: RePEc:eth:wpswif:03-30

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Related research
Keywords: Sectoral change; economic growth; resource reallocation costs; hysteresis; multiplicity of equilibria;

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Find related papers by JEL classification:
O0 - Economic Development, Technological Change, and Growth - - General
N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations

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  7. Francesco Giavazzi & Wyplosz, . "The Real Exchange Rate, the Current Account and the Speed of Adjustment," Rodney L. White Center for Financial Research Working Papers 13-82, Wharton School Rodney L. White Center for Financial Research.
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