Optimal growth with intermediate goods interdependence: A difference game approach
AbstractTwo countries face a strategic interdependence in producing intermediate goods. Producing these intermediate goods requires both of domestic capital and another imported intermediate good. Individually they determine its balanced growth path by taking into account this interdependence. By allowing for strategic interactions in the analysis we adapted a two-agent dynamic setting and find an interior Markov Perfect Equilibrium (MPE) as well as an open-loop equilibrium. We find that main results resemble each other but growth rates will be higher when strategies are allowed to be revised dynamically.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4675.
Date of creation: 30 Aug 2007
Date of revision:
Difference games; Economic growth; Intermediate goods;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- F15 - International Economics - - Trade - - - Economic Integration
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