Complementarities, Costly Investment and Multiple Equilibria in a One-Sector Endogenous Growth Model
In this paper we develop a multiple equilibria one-sector R&D-based growth model, in which the key aspects are the assumption of complementarities between capital goods in the production function and the assumption of costly investment in capital. This second assumption is new to the R&D-based literature. The equilibrium solutions are obtained when the Preferences curve, which mirrors consumers’ savings decisions, and the Technology curve, which represents equilibria on the production side, cross. The combination of the two key assumptions produces a non-linear Technology curve, which consequently crosses the Preferences curve more than once, thus generating multiple equilibria. A numerical solutions exercise obtains two equilibria. Application of the stability under learning criterion allows for the identification of the two equilibria as stable. Expectations can lead the economy to either the equilibrium characterised by high-growth and high-interest rates, or to the equilibrium characterised by low-growth and low-interest rates. Hence, with this model, we wish to contribute to endogenous growth literature by providing a mechanism to explain how an economy can experience multiple equilibria situations.
|Date of creation:||2003|
|Contact details of provider:|| Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal|
Phone: +351-253604510 ext 5532
Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fumio Hayashi, 1981.
"Tobin's Marginal q and Average a : A Neoclassical Interpretation,"
457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
- Luis A. Rivera-Batiz & Paul M. Romer, 1990.
"Economic Integration and Endogenous Growth,"
NBER Working Papers
3528, National Bureau of Economic Research, Inc.
- George Evans & Seppo Honkapohja & Paul Romer, 1996.
NBER Working Papers
5659, National Bureau of Economic Research, Inc.
- Kiminori Matsuyama, 1995.
"Complementarities and Cumulative Processes in Models of Monopolistic Competition,"
Journal of Economic Literature,
American Economic Association, vol. 33(2), pages 701-729, June.
- Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Silvestre, Joaquim, 1993.
"The Market-Power Foundations of Macroeconomic Policy,"
Journal of Economic Literature,
American Economic Association, vol. 31(1), pages 105-141, March.
- Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers 374, California Davis - Institute of Governmental Affairs.
- Benhabib, Jess & Perli, Roberto & Xie, Danyang, 1994. "Monopolistic competition, indeterminacy and growth," MPRA Paper 37411, University Library of Munich, Germany, revised 1994.
- Benhabib, Jess & Gali, Jordi, 1995.
"On Growth and Indeterminacy: Some Theory and Evidence,"
95-08, C.V. Starr Center for Applied Economics, New York University.
- Benhabib, Jess & Gali, Jordi, 1995. "On growth and indeterminacy: some theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 163-211, December.
- Cohen, Daniel, 1993.
"Growth and external debt,"
CEPREMAP Working Papers (Couverture Orange)
- Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
- Benavie, Arthur & Grinols, Earl & Turnovsky, Stephen J., 1996. "Adjustment costs and investment in a stochastic endogenous growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 77-100, August.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- van der Ploeg, Frederick, 1996. "Budgetary Policies, Foreign Indebtedness, the Stock Market, and Economic Growth," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 382-396, July.
When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:7/2003. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria João Thompson)
If references are entirely missing, you can add them using this form.