Optimal Growth Strategy Under Dynamic Threshold
AbstractWe consider an economy in which the technology exhibits nonconvexities due to fixed costs associated with production. Taking into account the incentives for investment to decrease the fixed costs, we characterize the circumstances under which an underdeveloped economy can catch up with the developing ones. We show that it is optimal to get rid of the fixed costs inherent in production at a finite period of time so that the economy will eventually converge to a positive steady state level of per capita income independent of the initial level of capital stock. Indeed, we obtain that even though the income disparities may be very persistent and can be perceived as poverty traps, all economies would ultimately converge to the same steady state level of per capita income.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-123.
Length: 23 pages
Date of creation: 25 Feb 2014
Date of revision:
Optimal Growth; Nonconvex technology; Poverty trap;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-08 (All new papers)
- NEP-GRO-2014-03-08 (Economic Growth)
- NEP-PBE-2014-03-08 (Public Economics)
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