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A Two-Country Model of Endogenous Growth

  • Roger E. A. Farmer

    (UCLA)

  • Amartya Lahiri

    (Federal Reserve Bank of New York)

We study the competitive equilibria of a two-country endogenous growth model in which the source of growth is the linearity of technology in reproducible inputs. We begin by showing that in a model with no externalities there is a unique equilibrium; however, there are multiple ways in which the social planner can allocate production plans across countries. We then introduce an externality to human capital and we show that the model has multiple equilibria that can be Pareto-ranked. In many of these equilibria there are perfectly foreseen discrete reallocations of capital from one country to another, accompanied by discrete jumps in growth rates. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2004.10.002
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 1 (January)
Pages: 68-88

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Handle: RePEc:red:issued:v:8:y:2005:i:1:p:68-88
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  1. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  2. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
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  4. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  5. Chamley, Christophe, 1993. "Externalities and Dynamics in Models of "Learning or Doing."," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 583-609, August.
  6. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  7. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  8. Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992. "On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems," Economic Theory, Springer, vol. 2(1), pages 43-68, January.
  9. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  10. Ellen R. McGrattan, 1998. "A defense of AK growth models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 13-27.
  11. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper 9324, Federal Reserve Bank of Dallas.
  12. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two sector model of endogenous growth with human and physical capital," Research Paper 9303, Federal Reserve Bank of Dallas.
  13. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  14. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  15. Michele Boldrin & Aldo Rustichini, 2010. "Growth and Indeterminacy in Dynamic Models with Externalities," Levine's Working Paper Archive 1382, David K. Levine.
  16. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  17. Farmer, Roger E A & Lahiri, Amartya, 2002. "Economic Growth in an Interdependent World Economy," CEPR Discussion Papers 3250, C.E.P.R. Discussion Papers.
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