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Complementarities and Costly Investment in a One-Sector Growth Model

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    Abstract

    The presence of complementarities generally makes a growth model nonlinear, hence delivering multiple equilibria. Introducing internal investment costs in the R&D-based growth literature, we develop a growth model which combines the assumptions of complementarities between capital goods in the production function and of internal costly investment in capital. We find that with such combination of complementarities and costly investment, the growth model delivers a single equilibrium.

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    File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2007/NIPE_WP_8_2007.PDF
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    Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 8/2007.

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    Date of creation: 2007
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    Handle: RePEc:nip:nipewp:8/2007

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    Keywords: Complementarities; Costly Investment; Economic Growth;

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    1. Evans, Geroge W & Honkapohja, Seppo & Romer, Paul, 1998. "Growth Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 495-515, June.
    2. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
    3. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
    4. Cohen, Daniel, 1993. "Growth and External Debt," CEPR Discussion Papers 778, C.E.P.R. Discussion Papers.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    6. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 525-28, August.
    7. Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Benavie, Arthur & Grinols, Earl & Turnovsky, Stephen J., 1996. "Adjustment costs and investment in a stochastic endogenous growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 77-100, August.
    9. Kiminori Matsuyama, 1997. "Complementarity," Discussion Papers 1183, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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