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Productive Consumption and Growth in Developing Countries

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  • Thomas M. Steger

Abstract

Productive consumption enables the satisfaction of current needs and increases the productive potential of labor. The productive‐consumption hypothesis is of fundamental interest because it modifies the “harsh” intertemporal consumption tradeoff traditionally assumed. The incorporation of the productive‐ consumption hypothesis into a simple endogenous growth model reveals the following implications: (i) the possibility of a poverty‐trap; (ii) the rule of optimal consumption turns into a modified Keynes–Ramsey rule; (iii) the (effective) IES is based on, inter alia, the technological opportunities to enhance human capital due to productive consumption; (iv) a rising saving rate; and (v) transitional dynamics to an asymptotic balanced‐growth path.

Suggested Citation

  • Thomas M. Steger, 2000. "Productive Consumption and Growth in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 365-375, October.
    • Handle: RePEc:bla:rdevec:v:4:y:2000:i:3:p:365-375
    DOI: 10.1111/1467-9361.00101
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    Cited by:

    1. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
    2. Ichiroh Daitoh & Kazuo Nishimura, 2019. "Productive Consumption Hypothesis and a Two-Sector Model of Economic Development," Keio-IES Discussion Paper Series 2019-007, Institute for Economics Studies, Keio University.
    3. Saraswat, Deepak, 2008. "Towards a sustainable Growth story: A critical analysis of the fundamentals," MPRA Paper 12306, University Library of Munich, Germany.
    4. Been‐Lon Chen & Shun‐Fa Lee, 2012. "Intersectoral Spillovers, Relative Prices and Development Traps," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 243-261, May.
    5. Daitoh, Ichiroh, 2010. "Productive consumption and population dynamics in an endogenous growth model: Demographic trends and human development aid in developing economies," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 696-709, April.
    6. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    7. Carter, Patrick & Postel-Vinay, Fabien & Temple, Jonathan, 2015. "Dynamic aid allocation," Journal of International Economics, Elsevier, vol. 95(2), pages 291-304.
    8. Steger, Thomas M., 2002. "Productive consumption, the intertemporal consumption trade-off and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 1053-1068, June.

    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I0 - Health, Education, and Welfare - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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