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Productive Consumption and Growth in Developing Countries

  • Steger, Thomas M

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. Copyright 2000 by Blackwell Publishing Ltd

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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 4 (2000)
Issue (Month): 3 (October)
Pages: 365-75

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Handle: RePEc:bla:rdevec:v:4:y:2000:i:3:p:365-75
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