Public infrastructure, non cooperative investments and endogeneous growth
AbstractThis paper develops a two-country general equilibrium model with endogenous growth where governements behave strategically in the provision of productive infrastructure. The public capitals enter both national and foreign production as an external input, and they are financed by a flat tax on income. In the private sector, firms and households take the public policy as given when making their decisions. It is shown that both a Markov Perfect Equillibrium (MPE) and a Centralized Solution (CS) exist, even when the parameters allow for endogenous growth, therefore explosive paths for the state variables. And the dynamic analysis reveals three important features. Firstly, under constant returns, the two countries' growth rates differ during the transition but are identical on the balanced growth path. Secondly, due to the infrastructure externality, assuming away constant returns to scale a country with decreasing returns can experience sustained growth provided that the other grows at a positive constant rate. Thirdly, Nash growth rates are compared with the centralized rates. We show that cooperation in infrastructure provision does not necessarily lead to higher growth for each country. We also show that, in some configurations of households' preferences and initial conditions, cooperation would call for a recession in the initial stages of development, whereas strategic investments would not. Lastly, depending also on the configuration of preferences, we show that cooperation can increase or decrease the gap between countries' growth rates.
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Bibliographic InfoPaper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 07-05.
Length: 34 pages
Date of creation: May 2007
Date of revision: Jan 2012
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Other versions of this item:
- Charles Figuières & Fabien Prieur & Mabel Tidball, 2013. "Public infrastructure, noncooperative investments, and endogenous growth," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 587-610, May.
- Charles Figuières & Fabien Prieur & Mabel Tidball, 2012. "Public Infrastructure, non Cooperative Investments and Endogenous Growth," Working Papers 12-07, LAMETA, Universtiy of Montpellier, revised Mar 2012.
- D9 - Microeconomics - - Intertemporal Choice and Growth
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-CSE-2007-11-10 (Economics of Strategic Management)
- NEP-DGE-2007-11-10 (Dynamic General Equilibrium)
- NEP-PBE-2007-11-10 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Manjira Datta & Leonard Mirman, .
"Dynamic Externalities and Policy Coordination,"
2132841, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Manjira Datta & Leonard J. Mirman, . "Dynamic Externalities and Policy Coordination," Working Papers 97/11, Arizona State University, Department of Economics.
- Leonard J. Mirman & Manjira Datta, 1996. "Dynamic Externalities and Policy Coordination," CRIEFF Discussion Papers 9608, Centre for Research into Industry, Enterprise, Finance and the Firm.
- David Aschauer, 1988.
"Does public capital crowd out private capital?,"
88-10, Federal Reserve Bank of Chicago.
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