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Optimal growth with intermediate goods interdependence: A difference game approach

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  • Larrosa, Juan MC

Abstract

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.

Suggested Citation

  • Larrosa, Juan MC, 2007. "Optimal growth with intermediate goods interdependence: A difference game approach," MPRA Paper 4675, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4675
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    File URL: https://mpra.ub.uni-muenchen.de/4675/1/MPRA_paper_4675.pdf
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    References listed on IDEAS

    as
    1. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2004. "Trade liberalization and strategic outsourcing," Journal of International Economics, Elsevier, vol. 63(2), pages 419-436, July.
    2. Antonio Ciccone, 2002. "Input Chains and Industrialization," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 565-587.
    3. Peng, Shin-Kun & Thisse, Jacques-Francois & Wang, Ping, 2006. "Economic integration and agglomeration in a middle product economy," Journal of Economic Theory, Elsevier, vol. 131(1), pages 1-25, November.
    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. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
    6. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, January.
    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. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Difference games; Economic growth; Intermediate goods;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F15 - International Economics - - Trade - - - Economic Integration

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