Endogenous Technology Choice and the Big Push
We present a general equilibrium model of imperfect competition to analyze Rosenstein-Rodan's idea of the 'Big Push'. Simultaneous investment of many sectors of the economy can be profitable for everyone although no sector can break even industrializing alone. The mechanism that generates such multiple macroeconomic equilibria is a demand spillover that influences how factor saving the chosen production technologies are. Contrary to the existing 'Big Push' literature, we show that pure profit spillovers can cause multiple equilibria. Equilibria with modern technologies are preferable to others. Adoption of highly productive technologies may be the only way to get out of a 'bad' equilibrium. Technology choice crucially depends on the property rights on profits and is shown to be extremely fragile with respect to policy.
|Date of creation:||14 Mar 1995|
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