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Testing Creative Destruction in an Opening Economy : the Case of the South African Manufacturing Inudstries

  • Philippe Aghion
  • Johannes Fedderke
  • Peter Howitt
  • Chandana Kularatne
  • Nicola Viegi

We study a Lucas (1978) "fruit-tree" economy under the assumption that agents are Choquet expected utility (CEU) rather than standard expected utility (EU) decision makers. The agents’ non-additive beliefs about the economy’s stochastic dividend payment process may thus express ambiguity attitudes and accommodate violations of Savage’s sure-thing principle as elicited by Ellsberg (1961). As our main formal result we establish the existence of a unique stationary equilibrium price function for the assets in this economy. In order to account for the dynamic inconsistency of CEU decision makers, we thereby use an equilibrium concept that combines the market clearing condition of general equilibrium theory with Bayesian Nash equilibrium. A simple example about the equity premium in our economy with non-additive beliefs illustrates our formal findings.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2008-23.

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Date of creation: 2008
Date of revision:
Handle: RePEc:fce:doctra:0823
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  1. Lawrence Edwards, 2005. "Has South Africa Liberalised Its Trade?," South African Journal of Economics, Economic Society of South Africa, vol. 73(4), pages 754-775, December.
  2. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  3. Fedderke, Johannes & Szalontai, Gábor, 2009. "Industry concentration in South African manufacturing industry: Trends and consequences, 1972-96," Economic Modelling, Elsevier, vol. 26(1), pages 241-250, January.
  4. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  6. Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc.
  7. Lawrence Edwards & Robert Z. Lawrence, 2006. "South African Trade Policy Matters: Trade Performance and Trade Policy," NBER Working Papers 12760, National Bureau of Economic Research, Inc.
  8. Philippe Aghion & Matias Braun & Johannes Fedderke, 2007. "Competition and Productivity Growth in South Africa," Working Papers 54, Economic Research Southern Africa.
  9. Johannes Fedderke & Chandana Kularatne & Martine Mariotti, 2005. "Mark-up Pricing in South African Industry," Working Papers 01, Economic Research Southern Africa.
  10. Johannes Fedderke & Dietmar Naumann, 2005. "An Analysis of Industry Concentration in South African Manufacturing, 1972-2001," Working Papers 26, Economic Research Southern Africa.
  11. Frankel, Jeffrey & Smit, Ben & Sturzenegger, Federico, 2007. "South Africa: Macroeconomic Challenges after a Decade of Success," Working Paper Series rwp07-021, Harvard University, John F. Kennedy School of Government.
  12. Abhijit Banerjee & Sebastian Galiani & Jim Levinsohn & Zoë McLaren & Ingrid Woolard, 2007. "Why Has Unemployment Risen in the New South Africa," NBER Working Papers 13167, National Bureau of Economic Research, Inc.
  13. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  14. Torfinn Harding & Jørn Rattsø, 2005. "The barrier model of productivity growth: South Africa," Discussion Papers 425, Statistics Norway, Research Department.
  15. Rodrick, Dani, 2006. "Understanding South Africa's Economic Puzzles," Working Paper Series rwp06-039, Harvard University, John F. Kennedy School of Government.
  16. J. Fedderke & P. Vaze, 2004. "Response To Rangasamy And Harmse: Trade Liberalisation In The 1990s," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 407-412, 06.
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