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Economic Growth and Sectoral Change under Resource Reallocation Costs

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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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Bibliographic Info

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

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Length: 33 pages
Date of creation: Dec 2003
Date of revision:
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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References

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  1. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  4. Temple, Jonathan, 2001. "Structural Change and Europe's Golden Age," CEPR Discussion Papers 2861, C.E.P.R. Discussion Papers.
  5. 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.
  6. Sergio T. Rebelo, 1992. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  7. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  8. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-98, June.
  9. 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, vol. 98(5), pages 1008-38, October.
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Cited by:
  1. Valente, Simone, 2006. "Intergenerational Transfers, Lifetime Welfare and Resource Preservation," MPRA Paper 1042, University Library of Munich, Germany.
  2. Simone Valente, 2005. "Genuine dissaving and optimal growth," CER-ETH Economics working paper series 05/38, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," CER-ETH Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  4. Simone Valente, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," CER-ETH Economics working paper series 06/53, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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