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Nonergodic Economic Growth

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  • Steven N. Durlauf

Abstract

This paper explores the role of complementarities and coordination failure in economic growth. We analyze the evolution composed of a countable set of infinitely-lived heterogenous industries. Individual industries exhibit nonconvexities in production and are linked across time through localized technological complementarities. Each industry employs one of two production techniques. One technique is more efficient in using capital than the other, but requires the payment of a fixed capital cost. Both techniques exhibit technological complementarities in the sense that the productivity of capital invested in a technique is a function of the technique choices made by various industries the previous period. These complementarities, when strong enough, interact with incompleteness of markets to produce multiple Pareto-rankable equilibria in ling run economic activity. The equilibria have a simple probabilistic structure that demonstrates how localized coordination failures can affect the aggregate equilibrium. The model is capable of generating interesting aggregate dynamics as coordination problems become the source of aggregate volatility. Modifications of the model illustrate how leading sectors can cause a takeoff into high growth.

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  • Steven N. Durlauf, 1991. "Nonergodic Economic Growth," NBER Working Papers 3719, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3719
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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    6. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    7. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    8. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    9. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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