IDEAS home Printed from https://ideas.repec.org/p/zbw/bofitp/bdp2004_004.html
   My bibliography  Save this paper

Endogenous time preference, investment and development traps

Author

Listed:
  • Haaparanta, Pertti
  • Puhakka, Mikko

Abstract

We introduce endogenous time preference via investment in patience (farsightedness) in an overlapping generations growth model to study development traps.There is no investment in patience, if the economy is very poor, while if it is wealthy enough there is always such investment.We explore the conditions for the existence of the development trap, and study in detail a robust example of an economy with traps.It does not exist, if the economy's total factor productivity is large enough.Our results illustrate the complementarity between physical investment and investment in farsightedness.Our model may also explain why economic growth is affected by initial conditions.In addition we show that increased international capital mobility does not necessarily help economies to escape from development traps.

Suggested Citation

  • Haaparanta, Pertti & Puhakka, Mikko, 2004. "Endogenous time preference, investment and development traps," BOFIT Discussion Papers 4/2004, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2004_004
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212535/1/bofit-dp2004-004.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Oded Galor & Harl E. Ryder, 1988. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Working Papers 1988-07, Brown University, Department of Economics.
    2. Elsa V. Artadi & Xavier Sala-i-Martin, 2003. "The Economic Tragedy of the XXth Century: Growth in Africa," NBER Working Papers 9865, National Bureau of Economic Research, Inc.
    3. Gary S. Becker & Casey B. Mulligan, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 729-758.
    4. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
    5. repec:zbw:bofitp:2003_002 is not listed on IDEAS
    6. Azariadis, Costas, 1996. "The Economics of Poverty Traps: Part One: Complete Markets," Journal of Economic Growth, Springer, vol. 1(4), pages 449-496, December.
    7. Buffie, Edward F, 1985. "Price-Output Dynamics, Capital Inflows and Real Appreciation," Oxford Economic Papers, Oxford University Press, vol. 37(4), pages 529-551, December.
    8. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
    9. Maurice Obstfeld, 1985. "The Capital Inflows Problem Revisited: A Stylized Model of Southern Cone Disinflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 605-625.
    10. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521004268.
    11. repec:zbw:bofitp:2003_001 is not listed on IDEAS
    12. World Bank, 2003. "World Development Indicators 2003," World Bank Publications - Books, The World Bank Group, number 13920, December.
    13. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1881-1898, August.
    14. T. Paul Schultz, 2003. "Human Capital, Schooling and Health Returns," Working Papers 853, Economic Growth Center, Yale University.
    15. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521782234.
    16. Schultz, T. Paul, 2003. "Human capital, schooling and health," Economics & Human Biology, Elsevier, vol. 1(2), pages 207-221, June.
    17. Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:bofitp:2004_004 is not listed on IDEAS
    2. Haaparanta, Pertti & Puhakka, Mikko, 2004. "Endogenous time preference, investment and development traps," BOFIT Discussion Papers 4/2004, Bank of Finland, Institute for Economies in Transition.
    3. Sarkar, Jayanta, 2007. "Growth dynamics in a model of endogenous time preference," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 528-542.
    4. Haruyama, Tetsugen & Park, Hyun, 2017. "A simple dynastic economy with parental time investment in children’s patience," Economic Modelling, Elsevier, vol. 61(C), pages 235-247.
    5. Momota, Akira & Sakagami, Tomoya & Shibata, Akihisa, 2019. "Reexamination of the Serendipity Theorem from the stability viewpoint," Journal of Demographic Economics, Cambridge University Press, vol. 85(1), pages 43-70, March.
    6. Natacha Raffin, 2009. "Environmental health and education: Towards sustainable growth," Documents de travail du Centre d'Economie de la Sorbonne 09026, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Fabien Prieur, 2009. "The environmental Kuznets curve in a world of irreversibility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(1), pages 57-90, July.
    8. Semih Tumen, 2017. "Entrepreneurship in the shadows," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(2), pages 239-269, April.
    9. Wolfgang Kuhle, 2012. "The Dynamics of Utility in the Neoclassical OLG Model," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2012_22, Max Planck Institute for Research on Collective Goods.
    10. Mountford, Andrew, 1999. "Trade Dynamics and Endogenous Growth: An Overlapping-Generations Analysis," Economica, London School of Economics and Political Science, vol. 66(262), pages 209-224, May.
    11. Farmer Karl & Bednar-Friedl Birgit, 2017. "Existence and Efficiency of Stationary States in a Renewable Resource Based OLG Model with Different Harvest Costs," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 62(3), pages 3-32, December.
    12. Schumacher, Ingmar, 2009. "Endogenous discounting via wealth, twin-peaks and the role of technology," Economics Letters, Elsevier, vol. 103(2), pages 78-80, May.
    13. Elena Rey & Miguel-Angel Lopez-Garcia, 2019. "Optimal public policy à la Ramsey in an endogenous growth model," Journal of Economics, Springer, vol. 128(2), pages 99-118, October.
    14. Peter J. Stauvermann & Ronald R. Kumar, 2022. "Does more market competition lead to higher income and utility in the long run?," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 761-782, July.
    15. Stan Metcalfe, 2014. "George Shackle and The Schumpeterian Legacy," Graz Economics Papers 2014-08, University of Graz, Department of Economics.
    16. Natacha Raffin, 2012. "Children’s environmental health, education, and economic development," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 996-1022, August.
    17. Philippe Michel & Leopold Von Thadden & Jean‐Pierre Vidal, 2010. "Debt Stabilizing Fiscal Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(5), pages 923-941, October.
    18. Fanti, Luciano & Gori, Luca, 2011. "Public health spending, old-age productivity and economic growth: Chaotic cycles under perfect foresight," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 137-151.
    19. Stéphane Lambrecht & Philippe Michel & Emmanuel Thibault, 2006. "Capital Accumulation and Fiscal Policy in an OLG Model with Family Altruism," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(3), pages 465-486, August.
    20. Li, Jinlu & Lin, Shuanglin, 2008. "Existence and uniqueness of steady-state equilibrium in a two-sector overlapping generations model," Journal of Economic Theory, Elsevier, vol. 141(1), pages 255-275, July.
    21. Bishnu, Monisankar, 2010. "Essays on optimal allocation of resources by governments," ISU General Staff Papers 201001010800002441, Iowa State University, Department of Economics.

    More about this item

    Keywords

    development trap; overlapping generations;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofitp:bdp2004_004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.