By Stephen J. Turnovsky
Financial progress is a controversy of fundamental quandary to coverage makers in either built and constructing economies. to that end, progress idea has lengthy occupied a important position in economics. during this booklet, popular development theorist Stephen J. Turnovsky investigates the method of monetary development in a small open economic system, exhibiting that it really is delicate to the effective constitution of the financial system. The ebook includes 3 components, starting with versions the place the one intertemporally achievable equilibrium is one within which the economic system is often on its balanced progress course. Empirical facts indicates fairly sluggish speeds of convergence so the second one a part of the e-book seems at numerous other ways within which transitional dynamics will be brought. within the 3rd and ultimate half, the writer applies the expansion version to the difficulty of overseas relief, focusing in particular on no matter if relief might be untied or tied to the buildup of public capital.
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Additional info for Capital Accumulation and Economic Growth in a Small Open Economy (The CICSE Lectures in Growth and Development)
This introduces two key changes. 8), so that the productivity of capital now depends positively upon the fraction of time devoted to productive labor. Second, the fixed endowment of a unit of time leads to the requirement that the steady-state allocation of time between labor and leisure must be constant. This latter condition provides a link between the long-run rate of growth of consumption and the rate of growth of output, forcing them to grow at the same constant rate. In this chapter we address the role of an elastic supply of labor in some depth, focusing particularly on the effectiveness of fiscal policy in such an economy.
But most tax revenues are used to finance government expenditures, which provide some benefits to the economy. We shall focus on government expenditure that enhances the productive capacity of the economy, identifying such expenditures as being on some form of infrastructure. 12 In Chapter 4 below, we shall discuss in some detail the more plausible case where it is the accumulated stock of government expenditure that is the more appropriate measure of productive government expenditure. We continue to abstract from labor (maintaining l ¼ l ) and assume that the production function of the representative firm is now specified by: Yi ¼ AGgs Ki1Àg AðGs =Ki Þg Ki ; 0< g <1 ð2:29Þ where Gs denotes the flow of productive services enjoyed by the individual firm.
1 Phase diagram q1 ¼ ½1 þ hrð1 À sb Þ À qﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃ Â Ãﬃ ½1 þ hrð1 À sb Þ2 À 1 þ 2hArð1 À sy Þ ð2:15aÞ q2 ¼ ½1 þ hrð1 À sb Þ þ qﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃ Â Ãﬃ ½1 þ hrð1 À sb Þ2 À 1 þ 2hArð1 À sy Þ ð2:15bÞ indicating the potential existence for two steady equilibrium growth rates for capital. Two cases can be identified: Case I: r(1 À sb) > Ar(1 À sy), which implies q2 > 1 > q1 > 0 Case II: r(1 À sb) < Ar(1 À sy), which implies q2 > q1 > 1 In either case it is seen from the phase diagram that the equilibrium point A, which corresponds to the smaller equilibrium value, q1, is an unstable equilibrium, while B, which corresponds to the larger value, q2, is locally stable.
Capital Accumulation and Economic Growth in a Small Open Economy (The CICSE Lectures in Growth and Development) by Stephen J. Turnovsky