Two-sector disequilibrium growth

We investigate the effects of (i) profit distribution to either laborers or capital-owners, (ii) sector-specific or efficient rationing schemes, and (iii) government consumption in a two-sector disequilibrium growth model with sluggish real wage rate adjustment (which affects capital accumulation)

On opulence driven poverty traps

Endogenous population growth, i.e., making the rate of population growth dependent on society's opulence, causes parametric changes to have a larger impact and can cause multiplicity of steady states in a dynamic intertemporal optimization framework. This provides a simple explanation for the possibility of differing growth paths between countries (using a standard production function) or another explanation of the poverty trap. We give two examples (opulence sensitivity and production sensitivity) that both give rise to three steady states in which poor (rich) countries will evolve over time to the low (high) income steady state. In both examples there are middle income countries that will choose the low (high) income steady state if they are impatient (patient), where patience is measured through the rate of time preference o. Foreign aid in the form of a large transfer of capital from abroad enables poor and impatient middle income countries to move to the high income steady state

Disequilibrium growth theory in an international perspective

An analysis is presented of a 2-good small open economy characterized by sluggish real wage rate adjustment. This causes short-run unemployment or excess-demand on the labor market, which in turn affects the speed of capital accumulation. Global stability is ensured if laborers receive the profits or if capital-owners receive the profits and save less than laborers. Otherwise, if capital-owners receive the profits and save more than laborers, local stability and "box" stability hold, but endless cycles cannot be excluded. Both short-run disequilibrium and income redistribution may have long-run effects, i.e., may affect the long-run capital-labor ratio. The model is applied to examine the dynamic implications of a change in the terms-of-trade and of real wage rigidity

Is growth bad for the environment? Pollution, abatement and endogenous growth

Recentiy, the importance of environmental and economic "win-win" situations has been stressed, indicating that care of the environment requires economic growth, while economic growth in turn cannot take place without taking proper care of the environment. We generalize a popular endogenous growth model with constant returns to scale in a broad measure of the capital stock, by making consumers care not only about current and future consumption levels, but also about the current and future quali'y of the environment, to see under what circumstances "win-win" situations can arise. The capital stock is decomposed into private capital and productive government spending. Production of goods and services causes pollution which is detrimental to the environment. The government can invest in abatement processes to clean up the environment and in productive government spending by taxing production (= income). There is, therefore, both an environmental externality and a public good, i.e. productive government spending. This brings us within the realms of second-best economics. We investigate the decentralized market economy as well as the command economy. Two approaches to model the environment can be distinguished in the literature: the stock approach and the flow approach. The flow approach assumes that the level of environmental quality changes instantaneously if the production level changes or if the level of abatement changes and is particularly relevant for analysing the environmental externality associated with noise. The stock approach, on the other hand, assumes that pollution and abatement indirectly influence the environment by affecting the rate of change of the environment over time and is more relevant for analyzing the problems of acid rain