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Optimal growth with intermediate goods interdependence: A difference game approach

  • Larrosa, Juan MC

Two countries face a strategic interdependence in producing intermediate goods. Producing these intermediate goods requires both of domestic capital and another imported intermediate good. Individually they determine its balanced growth path by taking into account this interdependence. By allowing for strategic interactions in the analysis we adapted a two-agent dynamic setting and find an interior Markov Perfect Equilibrium (MPE) as well as an open-loop equilibrium. We find that main results resemble each other but growth rates will be higher when strategies are allowed to be revised dynamically.

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File URL: http://mpra.ub.uni-muenchen.de/4675/1/MPRA_paper_4675.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4675.

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Date of creation: 30 Aug 2007
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Handle: RePEc:pra:mprapa:4675
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  1. Shin-Kun Peng & Jacques-François Thisse & Ping Wang, 2005. "Economic Integration and Agglomeration in a Middle Product Economy," IEAS Working Paper : academic research 05-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  2. Antonio Ciccone, 2002. "Input Chains and Industrialization," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 565-587.
  3. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  4. Fischer, Ronald D. & Mirman, Leonard J., 1996. "The Compleat Fish Wars: Biological and Dynamic Interactions," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 34-42, January.
  5. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2001. "Trade Liberalization and Strategic Outsourcing," Discussion Papers 2001-04, Graduate School of Economics, Hitotsubashi University.
  6. repec:cup:cbooks:9780521637329 is not listed on IDEAS
  7. Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
  8. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
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