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On public investment, long-run growth, and the real exchange rate


  • Sugata Ghosh


This paper extends the Barro (1990) endogenous growth model with productive government services to a two-country world with perfect capital mobility, populated by optimising agents with uncertain lifetimes. It shows that increases in government spending on infrastructure for the home country result in higher growth rates and a terms of trade improvement. Both these effects are reversed after a point, showing that a hump-shaped curve--similar to the Barro curve, but with different properties--can be obtained here even with lump-sum taxes. We also examine the welfare implications of public investment policies, and characterise the world economy's dynamics. Copyright 2002, Oxford University Press.

Suggested Citation

  • Sugata Ghosh, 2002. "On public investment, long-run growth, and the real exchange rate," Oxford Economic Papers, Oxford University Press, vol. 54(1), pages 72-90, January.
  • Handle: RePEc:oup:oxecpp:v:54:y:2002:i:1:p:72-90

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    References listed on IDEAS

    1. Haddad, Lawrence & Kanbur, Ravi, 1990. "How Serious Is the Neglect of Intra-Household Inequality?," Economic Journal, Royal Economic Society, vol. 100(402), pages 866-881, September.
    2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    3. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
    4. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 709-724.
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    Cited by:

    1. Ghosh, Sugata & Mourmouras, Iannis A., 2004. "Endogenous growth, welfare and budgetary regimes," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 623-635, December.
    2. Schiffbauer, Marc, 2006. "Theoretical and methodological study on the role of public policies in fostering innovation and growth," Papers DYNREG04, Economic and Social Research Institute (ESRI).
    3. Kosempel, Stephen, 2004. "Finite lifetimes and government spending in an endogenous growth model," Journal of Economics and Business, Elsevier, vol. 56(3), pages 197-210.
    4. Gupta, Manash Ranjan & Barman, Trishita Ray, 2010. "Health, infrastructure, environment and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 657-673, June.
    5. Carlos Esteban Posada & Wilman Gómez, 2002. "Crecimiento económico y gasto público: un modelo para el caso colombiano," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 20(41-42), pages 5-86, Junio-Dic.
    6. Gupta, Manash Ranjan & Barman, Trishita Ray, 2009. "Fiscal policies, environmental pollution and economic growth," Economic Modelling, Elsevier, vol. 26(5), pages 1018-1028, September.
    7. Schiffbauer, Marc, 2007. "Calling for innovations - infrastructure and sources of growth," Papers DYNREG18, Economic and Social Research Institute (ESRI).
    8. Florian Misch & Norman Gemmell & Richard Kneller, 2013. "Growth and Welfare Maximization in Models of Public Finance and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(6), pages 939-967, December.
    9. Trishita Ray Barman & Manash Ranjan Gupta, 2010. "Public Expenditure, Environment, and Economic Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1109-1134, December.
    10. Hajamini, Mehdi & Falahi, Mohammad Ali, 2012. "Economic growth and the optimum size of government in 15 European countries: A threshold panel approach," MPRA Paper 39616, University Library of Munich, Germany.
    11. Bertarelli Silvia, 2006. "Public capital and growth," Politica economica, Società editrice il Mulino, issue 3, pages 361-398.

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