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A Two-Country Model of Endogenous Growth

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  • Farmer, Roger E A
  • Lahiri, Amartya

Abstract

In this Paper 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.

Suggested Citation

  • Farmer, Roger E A & Lahiri, Amartya, 2002. "A Two-Country Model of Endogenous Growth," CEPR Discussion Papers 3245, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3245
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fujisaki, Seiya, 2013. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," Economic Modelling, Elsevier, vol. 35(C), pages 597-603.
    2. Roger E. A. Farmer & Amartya Lahiri, 2006. "Economic Growth in an Interdependent World Economy," Economic Journal, Royal Economic Society, vol. 116(514), pages 969-990, October.
    3. Leimbach, Marian & Edenhofer, Ottmar, 2007. "Technological spillovers within multi-region models: Intertemporal optimization beyond the Negishi approach," Economic Modelling, Elsevier, vol. 24(2), pages 272-294, March.
    4. Kazuo Mino, 2008. "Preference Structure and Volatility in a Financially Integrated World," Discussion Papers in Economics and Business 08-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    5. De, Supriyo, 2014. "Intangible capital and growth in the ‘new economy’: Implications of a multi-sector endogenous growth model," Structural Change and Economic Dynamics, Elsevier, vol. 28(C), pages 25-42.
    6. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," CESifo Working Paper Series 4882, CESifo Group Munich.
    7. Mino, Kazuo, 2008. "Financial integration and volatility in a two-country world," MPRA Paper 16953, University Library of Munich, Germany.
    8. Jaime Alonso-Carrera & Maria Jesus Freire-Seren & Baltasar Manzano, 2008. "Macroeconomic Effects From The Regional Allocation Of Public Capital Formation," CAMA Working Papers 2008-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Fujisaki, Seiya, 2012. "Interest Rate Control Rules and Macroeconomic Stability in a Heterogeneous Two-Country Model," MPRA Paper 37017, University Library of Munich, Germany.
    10. Alonso-Carrera, Jaime & Freire-Serén, María Jesús & Manzano, Baltasar, 2009. "Macroeconomic effects of the regional allocation of public capital formation," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 563-574, September.
    11. Fujisaki, Seiya, 2012. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," MPRA Paper 40023, University Library of Munich, Germany.
    12. Doi, Junko & Nishimura, Kazuo & Shimomura, Koji, 2007. "A two-country dynamic model of international trade and endogenous growth: Multiple balanced growth paths and stability," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 390-419, April.
    13. Lee, Shun-Fa, 2010. "Tariff, Growth, and Welfare," MPRA Paper 27486, University Library of Munich, Germany.
    14. Marian Leimbach & Klaus Eisenack, 2009. "A Trade Algorithm for Multi-Region Models Subject to Spillover Externalities," Computational Economics, Springer;Society for Computational Economics, vol. 33(2), pages 107-130, March.

    More about this item

    Keywords

    endogenous growth; open economy;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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