Long Run Policy Analysis and Long Run Growth

Abstract

The wide cross-country disparity in rates of economic growth is the most puzzling feature of the development process. This paper describes a class of models in which this type of heterogeneity in growth experiences can arise as a result of cross-country differences in government policy. These differences in policy regimes can also create incentives for labor migration from slow growing to fast growing countries. In the class of models that we study growth is endogenous but the technology exhibits constant returns to scale and there is a steady state path that accords with Kaldor's stylized facts of economic development. The key to making growth endogenous in the absence of increasing returns is the presence of a "core" of capital goods that can be produced without the direct or indirect contribution of factors that cannot be accumulated, such as land.