Saving and investment in a two-sector model of endogenous growth of a small open economy
We develop a two sector model of endogenous growth. The export sector is the only sector that generates technological progress. Technological knowledge can be used by the import sector. Firms face adjustment costs for investment. The model has well defined equations for the growth rate of capital, and for the growth rate of consumption. The model has a steady state solution. We study the relation between the interest rate and the growth rate. The optimal growth rate is higher than that achieved in the market economy without government. The optimal policy is an investment subsidy in the export sector.
Volume (Year): 13 (1998)
Issue (Month): 2 ()
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- Rauch, James E., 1992. "A note on the optimum subsidy to a learning industry," Journal of Development Economics, Elsevier, vol. 38(1), pages 233-243, January.
- Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
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- Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
- Casey B. Mulligan & Xavier Sala-i-Martin, 1991. "A Note on the Time-Elimination Method For Solving Recursive Dynamic Economic Models," NBER Technical Working Papers 0116, National Bureau of Economic Research, Inc.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, September. Full references (including those not matched with items on IDEAS)
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