IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v21y2010i3p197-205.html
   My bibliography  Save this article

Path-dependent economic progress and regress: The negative role of subsidies in economic growth

Author

Listed:
  • Harada, Tsutomu

Abstract

This paper develops a two-stage economic growth model with real options and examines the effects of various subsidy policies. The economic stages are the deterministic and stochastic AK stages, and the economy may shift between the two, depending upon state variables and technological shocks. This model allows for path-dependent economic growth that accounts for both club convergence and divergence across countries. Moreover, it is shown that under certain conditions, a decrease in the subsidy rate facilitates the shift from the deterministic to stochastic AK stages, which is defined as "economic progress", even in the face of an economic crisis, while more subsidies delay economic progress and promote the shift from the stochastic to deterministic AK stages, which is defined as "economic regress".

Suggested Citation

  • Harada, Tsutomu, 2010. "Path-dependent economic progress and regress: The negative role of subsidies in economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 21(3), pages 197-205, August.
  • Handle: RePEc:eee:streco:v:21:y:2010:i:3:p:197-205
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954-349X(10)00032-9
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Boucekkine, Raouf & Saglam, Cagri & Vall Ee, Thomas, 2004. "Technology Adoption Under Embodiment: A Two-Stage Optimal Control Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 8(02), pages 250-271, April.
    2. Tsutomu Harada, 2010. "Path-dependent economic growth with technological trajectory," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 19(6), pages 521-538.
    3. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-177, February.
    4. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-1384, December.
    5. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-981, November.
    6. Rosenberg,Nathan, 1994. "Exploring the Black Box," Cambridge Books, Cambridge University Press, number 9780521459556, March.
    7. Jonathan Eaton, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 435-445.
    8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    9. Dixit Avinash & Rob Rafael, 1994. "Switching Costs and Sectoral Adjustments in General Equilibrium with Uninsured Risk," Journal of Economic Theory, Elsevier, vol. 62(1), pages 48-69, February.
    10. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
    11. Peter Howitt, 2000. "Endogenous Growth and Cross-Country Income Differences," American Economic Review, American Economic Association, vol. 90(4), pages 829-846, September.
    12. Corsetti, Giancarlo, 1997. "A portfolio approach to endogenous growth: equilibrium and optimal policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1627-1644, August.
    13. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-349, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. López, Santiago M. & Molero, José & Santos-Arteaga, Francisco J., 2011. "Poverty traps in a frictionless world: The effects of learning and technology assimilation," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 106-115, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:21:y:2010:i:3:p:197-205. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.