By Stephen J. Turnovsky
Financial development is an argument of basic difficulty to coverage makers in either built and constructing economies. accordingly, progress thought has lengthy occupied a critical function in economics. during this booklet, popular progress theorist Stephen J. Turnovsky investigates the method of monetary development in a small open economic climate, exhibiting that it really is delicate to the efficient constitution of the financial system. The publication includes 3 elements, starting with types the place the one intertemporally workable equilibrium is one during which the financial system is usually on its balanced development direction. Empirical proof indicates really sluggish speeds of convergence so the second one a part of the publication seems at numerous other ways during which transitional dynamics should be brought. within the 3rd and ultimate half, the writer applies the expansion version to the problem of international relief, focusing particularly on even if relief could be untied or tied to the buildup of public capital.
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Extra resources for Capital Accumulation and Economic Growth in a Small Open Economy
This component reflects the fact that an additional source of benefit from higher capital stock is the reduction of the installation costs (which depend upon I/K) associated with new investment. 1 ð2:4cÞ The government in this canonical economy plays a limited role. It levies income taxes on output and foreign interest income, it taxes consumption, and then rebates all tax revenues. 1d) leads to: B_ ¼ Y þ rB À C À I ½1 þ ðh=2ÞðI=K Þ ð2:6Þ which describes the country’s current account. It asserts that the rate at which the economy accumulates foreign bonds equals its trade balance, Y À C À I (1 þ (h/2)(I/K)), plus the interest it is earning on its capital account.
14) holds, so that a steady asymptotic growth path for capital does indeed exist. 13) would have more solutions and quite plausibly a multiplicity of feasible solutions. 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.
On the one hand, an increase in government expenditure raises the productivity of capital, while at the same time it absorbs some of the output.