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Optimal accumulation in a small open economy with technological uncertainty

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  • Manjira Datta

    (Department of Economics, Arizona State University, Box 873806, Tempe, AZ 85287-3806, USA)

Abstract

This paper analyzes the optimal allocation problem of a small trading country facing an uncertain technology. It is involved in production of many commodities. Differentiability cannot be guaranteed, hence, the Ramsey-Euler condition of optimality needs to be modified. From the optimality criterion, we derive a pair of conditions, which does not require differentiability. If "enough" uncertainty is allowed, the sequence of the distribution functions of investment expenditure converges uniformly to a unique invariant measure. In addition to the weak convergence of the stochastic process of investment expenditure we also have the sequences of the stochastic process of investment expenditure converging weakly.

Suggested Citation

  • Manjira Datta, 1999. "Optimal accumulation in a small open economy with technological uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 207-219.
    • Handle: RePEc:spr:joecth:v:13:y:1999:i:1:p:207-219
    Note: Received: September 8, 1994; revised version: September 25, 1997
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    References listed on IDEAS

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    1. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
    2. Mirman, Leonard J. & Zilcha, Itzhak, 1975. "On optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 11(3), pages 329-339, December.
    3. Goldin,Ian & Winters,L. Alan (ed.), 1992. "Open Economies," Cambridge Books, Cambridge University Press, number 9780521420563.
    4. W. Davis Dechert & Kazuo Nishimura, 2012. "A Complete Characterization of Optimal Growth Paths in an Aggregated Model with a Non-Concave Production Function," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 237-257, Springer.
    5. Mukul Majumdar & Tapan Mitra & Yaw Nyarko, 1989. "Dynamic Optimization Under Uncertainty: Non-convex Feasible Set," Palgrave Macmillan Books, in: George R. Feiwel (ed.), Joan Robinson and Modern Economic Theory, chapter 19, pages 545-590, Palgrave Macmillan.
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    Cited by:

    1. Lars J. Olson & Santanu Roy, 2006. "Theory of Stochastic Optimal Economic Growth," Springer Books, in: Rose-Anne Dana & Cuong Le Van & Tapan Mitra & Kazuo Nishimura (ed.), Handbook on Optimal Growth 1, chapter 11, pages 297-335, Springer.
    2. Chatterjee, Partha & Shukayev, Malik, 2012. "A stochastic dynamic model of trade and growth: Convergence and diversification," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 416-432.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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