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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-Françiois & WANG, Ping, . "Economic integration and agglomeration in a middle product economy," CORE Discussion Papers RP 1878, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2001. "Trade Liberalization and Strategic Outsourcing," Discussion Papers 2001-04, Graduate School of Economics, Hitotsubashi University.
  3. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x.
  4. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
  5. Antonio Ciccone, 2000. "Input chains and industrialization," Economics Working Papers 498, Department of Economics and Business, Universitat Pompeu Fabra.
  6. 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, June.
  7. 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.
  8. 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.
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