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Nonergodic Economic Growth

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  • Steven N. Durlauf

Abstract

This paper explores the role of complementarities and coordination failure in economic growth. We analyze the evolution composed of a countable set of infinitely-lived heterogenous industries. Individual industries exhibit nonconvexities in production and are linked across time through localized technological complementarities. Each industry employs one of two production techniques. One technique is more efficient in using capital than the other, but requires the payment of a fixed capital cost. Both techniques exhibit technological complementarities in the sense that the productivity of capital invested in a technique is a function of the technique choices made by various industries the previous period. These complementarities, when strong enough, interact with incompleteness of markets to produce multiple Pareto-rankable equilibria in ling run economic activity. The equilibria have a simple probabilistic structure that demonstrates how localized coordination failures can affect the aggregate equilibrium. The model is capable of generating interesting aggregate dynamics as coordination problems become the source of aggregate volatility. Modifications of the model illustrate how leading sectors can cause a takeoff into high growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3719.

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Date of creation: May 1991
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Publication status: published as Review of Economic Studies, Vol. 60, no. 203 (1993): 349-366.
Handle: RePEc:nbr:nberwo:3719

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  1. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
  2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  3. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  5. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  6. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  7. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  8. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
  9. Russell Cooper, 1987. "Dynamic Behavior of Imperfectly Competitive Economies with Multiple Equilibria," NBER Working Papers 2388, National Bureau of Economic Research, Inc.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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