Regular Article
A Model of Optimal Growth Strategy,☆☆

https://doi.org/10.1006/jeth.1998.2489Get rights and content

Abstract

In this paper we present an optimal growth model with convex–concave technology for an open developing country. The latter may choose to produce consumption goods by borrowing on capital markets or to import consumption goods by investing its saving on capital markets. We prove there exist two nontrivial steady states. An optimal path converges either to 0 or to the high steady state, that depends on the levels of the initial debt and/or of the debt constraint. We also prove there exists a poverty trap if the time preference is very high.Journal of Economic LiteratureClassifications Numbers: D9, E13, O41.

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    It is clearly not an optimal or nonoptimal steady state because then it would have to satisfy (9). The existence of critical value is actually recognized since the papers by Clark (1971); Majumdar and Mitra (1982); Dechert and Nishimura (1983) in discrete time and Skiba (1978) and Askenazy and Le Van (1999) in continuous time horizon. These studies are mostly devoted to the analysis of the technology component leaving the time preference essentially unaltered with an exogenously fixed geometric discounting.

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The authors thank Jean-Pierre Laffargue and an anonymous referee for their very helpful criticism and suggestions.

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B. S. JensenK. Y. Wong

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