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Productive Consumption and Growth in Developing Countries

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Thomas M. Steger (University of Siegen)

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Abstract

Productive consumption enables the satisfaction of current needs and, at the same time, increases the productive potential of labour. Theoretical as well as empirical evidence suggests that productive consumption is primarily relevant to low-income countries. From the perspective of growth theory, the productive-consumption hypothesis is of fundamental interest because it modifies the "harsh" intertemporal consumption trade-off traditionally assumed. The incorporation of the productive- consumption hypothesis into a simple endogenous growth model reveals the following implications: (a) the possibility of a poverty- trap, (b) the rule of optimal consumption turns into a modified Keynes- Ramsey rule, (c) the (effective) IES is not only based on preferences but in addition on the technological possibilities to enhance human capital due to productive consumption, (d) a rising saving rate, and (e) transitional dynamics to an asymptotic balanced growth equilibrium.

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Paper provided by EconWPA in its series Development and Comp Systems with number 9710001.

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Length: 38 pages
Date of creation: 09 Oct 1997
Date of revision: 02 Dec 1997
Handle: RePEc:wpa:wuwpdc:9710001

Note: Type of Document - Word for Windows; prepared on IBM PC ; to print on HP; pages: 38 ; figures: nine (included)
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Related research
Keywords: Productive Consumption Human Capital Growth in DCs

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Find related papers by JEL classification:
D9 - Microeconomics - - Intertemporal Choice and Growth
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
I0 - Health, Education, and Welfare - - General
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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