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Globalization, the volatility of intermediate goods prices and economic growth

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Abstract

We set up a dynamic stochastic model of a stylized economy comprising a final output sector (with traditional and modern firms) and an intermediate goods sector. It is shown that market integration reduces the volatility of the rate of return of capital invested in modern firms. The induced portfolio decision of households then leads to reallocation of capital from traditional to modern firms. Despite the presence of a reverse precautionary saving channel, the growth rate unambiguously increases due to the reallocation of capital. Empirical estimates for OECD countries confirm the theoretical results

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  • Thomas M. Steger & Lucas Bretschger, 2005. "Globalization, the volatility of intermediate goods prices and economic growth," CER-ETH Economics working paper series 05/40, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:05-40
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    Cited by:

    1. Andreas Schäfer & Thomas Steger, 2014. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 783-807, September.
    2. Casajus, André, 2011. "Collusion, symmetry, and the Banzhaf value," Working Papers 99, University of Leipzig, Faculty of Economics and Management Science.
    3. Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," CER-ETH Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Valente, Simone, 2008. "Intergenerational transfers, lifetime welfare, and resource preservation," Environment and Development Economics, Cambridge University Press, vol. 13(01), pages 53-78, February.
    5. Schnabl, Gunther & Zemanek, Holger, 2011. "Die Deutsche Wiedervereinigung und die europäische Schuldenkrise im Lichte der Theorie optimaler Währungsräume," Working Papers 94, University of Leipzig, Faculty of Economics and Management Science.
    6. Grossmann, Volker & Steger, Thomas & Trimborn, Timo, 2013. "Dynamically optimal R&D subsidization," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 516-534.
    7. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.
    8. Casajus, André, 2012. "Solidarity and fair taxation in TU games," Working Papers 111, University of Leipzig, Faculty of Economics and Management Science.
    9. Casajus, André & Huettner, Frank, 2013. "Null players, solidarity, and the egalitarian Shapley values," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 58-61.
    10. Quaas, Georg & Köster, Robert, 2012. "Ein Modell für die Wirtschaftszweige der deutschen Volkswirtschaft: Das "MOGBOT" (Model of Germany's Branches of Trade)," Working Papers 106, University of Leipzig, Faculty of Economics and Management Science.
    11. Casajus, André & Hüttner, Frank, 2012. "Nullifying vs. dummifying players or nullified vs. dummified players: The difference between the equal division value and the equal surplus division value," Working Papers 110, University of Leipzig, Faculty of Economics and Management Science.
    12. Quaas, Georg, 2012. "Ein Nelson-Winter-Modell der deutschen Volkswirtschaft," Working Papers 112, University of Leipzig, Faculty of Economics and Management Science.
    13. Hoffmann, Andreas & Schnabl, Gunther, 2011. "Symmetrische Regeln und asymmetrisches Handeln in der Geld- und Finanzpolitik," Working Papers 95, University of Leipzig, Faculty of Economics and Management Science.

    More about this item

    Keywords

    globalization; trade in intermediate goods; portfolio decisions; economic growth;

    JEL classification:

    • F1 - International Economics - - Trade
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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