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Leapfrogging, Growth Reversals and Welfare


  • Raouf Boucekkine

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)

  • Giorgio Fabbri

    () (Dipartimento Matematica e statistica - Université de Naples)

  • Patrick-Antoine Pintus

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)


We show that leapfrogging and growth reversals entail sizeable welfare gains and losses, respectively, in an AK economy that cannot credibly commit to investment when borrowing from international financial markets. Small no-commitment delays originate a trade-off that has an ambiguous effect on welfare: they reduce the long-run consumption growth rate but increase the initial level of consumption that is optimally chosen. Essentially, the larger the delay, the tighter the borrowing constraint and the weaker the incentives to accumulate capital, so that smaller growth and larger initial consumption follow. We show under logarithmic utility and small delays that the short-run effect dominates the long-run effect and that welfare improves, provided that the economy has historically been growing fast enough, and numerical examples suggest that this benchmark result extends to CRRA utility. When relative risk aversion is larger than one, it follows that there exists a positive welfare-maximizing delay associated with slower growth relative to the no-delay case. We then apply our results to show that leapfrogging in consumption level typically imply large welfare gains. In contrast, growth reversals occur for large delays and lead to significant welfare losses. Finally, financial integration, as measured by the credit multiplier given the no-commitment delay, is welfare-improving only for economies that have historically been growing fast enough.

Suggested Citation

  • Raouf Boucekkine & Giorgio Fabbri & Patrick-Antoine Pintus, 2011. "Leapfrogging, Growth Reversals and Welfare," Working Papers halshs-00576743, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00576743
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    References listed on IDEAS

    1. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 359-406.
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    Cited by:

    1. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2013. "On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 101-112, March.
    2. Raouf Boucekkine & Patrick Pintus, 2012. "History’s a curse: leapfrogging, growth breaks and growth reversals under international borrowing without commitment," Journal of Economic Growth, Springer, vol. 17(1), pages 27-47, March.
    3. Raouf Boucekkine & Giorgio Fabbri & Patrick Pintus, 2012. "Short-Run Pain, Long-Run Gain: The Conditional Welfare Gains from International Financial Integration The Conditional Welfare Gains from International Financial Integration," AMSE Working Papers 1202, Aix-Marseille School of Economics, Marseille, France, revised 27 Jun 2016.

    More about this item


    Growth Reversals; Leapfrogging; International Borrowing; Open Economies; Welfare;

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