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Market Failures and Government Failures in the Model of Transition from Stagnation to Growth

Author

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  • Veselov, D.

    (National Research University - Higher School of Economics, Moscow, Russia)

Abstract

The paper provides a framework for analysis of optimal growth enhancing policy in the economy with market and government failures. It develops an endogenous growth model with strategic complementarities between R&D investments of firms and investments in training of households. The model generates two possible long-run equilibriums: no-growth poverty trap equilibrium and stable sustainable growth equilibrium. In the extended version of the model with government failures we assume that some part of government revenue is expropriated by rent seeking agents. With these conditions we analyze the possibility of transition from stagnation to growth induced by government investment subsidies and other factors.

Suggested Citation

  • Veselov, D., 2011. "Market Failures and Government Failures in the Model of Transition from Stagnation to Growth," Journal of the New Economic Association, New Economic Association, issue 12, pages 24-39.
  • Handle: RePEc:nea:journl:y:2011:i:12:p:24-39
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    References listed on IDEAS

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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    2. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    3. Goodfriend, Marvin & McDermott, John, 1995. "Early Development," American Economic Review, American Economic Association, vol. 85(1), pages 116-133, March.
    4. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, January.
    5. Barham, Vicky & Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1995. "Education and the poverty trap," European Economic Review, Elsevier, vol. 39(7), pages 1257-1275, August.
    6. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    7. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
    8. Mehlum, Halvor & Moene, Karl & Torvik, Ragnar, 2003. "Predator or prey?: Parasitic enterprises in economic development," European Economic Review, Elsevier, vol. 47(2), pages 275-294, April.
    9. Daron Acemoglu, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 445-464.
    10. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    11. Oded Galor, 2011. "Unified Growth Theory," Economics Books, Princeton University Press, edition 1, number 9477.
    12. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
    13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Balatsky, Ye., 2012. "Technological Diffusion and Investment Decision," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 10-34.

    More about this item

    Keywords

    poverty trap; endogenous growth theory; human capital; rent seeking;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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