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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: https://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. Peng, Shin-Kun & Thisse, Jacques-François & Wang, Ping, 2004. "Economic Integration and Agglomeration in a Middle Product Economy," CEPR Discussion Papers 4441, C.E.P.R. Discussion Papers.
  2. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2004. "Trade liberalization and strategic outsourcing," Journal of International Economics, Elsevier, vol. 63(2), pages 419-436, July.
  3. 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.
  4. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
  5. 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, Junio.
  6. Antonio Ciccone, 2002. "Input Chains and Industrialization," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 565-587.
  7. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, March.
  8. 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.
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