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QUALITY OF KNOWLEDGE TECHNOLOGY, RETURNS TO PRODUCTION TECHNOLOGY, AND ECONOMIC DEVELOPMENT

Published online by Cambridge University Press:  06 April 2004

CUONG LE VAN  and
H. CAGRI SAGLAM
CUONG LE VAN
Affiliation:
CNRS, CERMSEM, Université de Paris I
H. CAGRI SAGLAM
Affiliation:
IRES, Université Catholique de Louvain
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Abstract

We incorporate a production technology that exhibits increasing returns to scale for small values of the capital stock and diminishing returns for the higher stocks at the firm level in a discrete-time version of Romer's endogenous growth model. We study the social planner's problem where the social production technology exhibits globally increasing returns to scale. The properties of the optimal paths are characterized. It is proved that for a given quality of knowledge technology, the countries can take off if their initial stock of capital is above a critical value. We analyze the effect of three factors on the critical value: initial knowledge, quality of knowledge technology, and level of fixed costs associated with production.

Keywords

Optimal GrowthOptimal PathIncreasing ReturnsPoverty Trap
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 8 , Issue 2 , April 2004 , pp. 147 - 161
Copyright
© 2004 Cambridge University Press

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