Business Cycles with Spirit of Capitalism and Conspicuous Consumption in a Multi-Country Growth Model

Wei-Bin Zhang

doi:10.5539/ibr.v10n8p58

Abstract

This paper generalizes the global economic growth model with spirit of capitalism, social status, and conspicuous consumption recently proposed by Zhang (2016). Zhang’s model examines the role of spirit of capitalism, social status, and conspicuous consumption in national and international economic development, trade patterns, and distribution of income and wealth between countries. The multi-country growth model treats social status and wealth accumulation as endogenous variables. This paper generalizes the model by Zhang through making all exogenous constant parameters as exogenous time-dependent parameters. We demonstrate how the system reacts to exogenous periodic perturbations.

Highlights

The purpose of this study is to generalizes the global economic growth model with spirit of capitalism, social status, and conspicuous consumption recently proposed by Zhang (2016)
In his theory conspicuous consumption is considered as symbols of social status
We study the effects of the periodic perturbations in the parameter measuring spirit of capitalism as follows

Summary

Introduction

The purpose of this study is to generalizes the global economic growth model with spirit of capitalism, social status, and conspicuous consumption recently proposed by Zhang (2016). The model by Zhang (2016) is the first formal model which introduces social status into the neoclassical global growth model with national inequalities in income and wealth. This study introduces exogenous real shocks to the neoclassical global growth model to demonstrate the existence of business cycles due to real shocks. Many theoretical and empirical research about mechanisms and phenomena of economic fluctuations are published (e.g., Zhang, 1991, 2005, 2006; Lorenz, 1993; Flaschel et al 1997; Chiarella and Flaschel, 2000; Shone, 2002; Gandolfo, 2005; Puu, 2011; Tian, 2015) These studies deal with economic business cycles on the basis of different economic theories.

The Multi-Country Trade Growth Model with Social Status

The Capital Good Sectors

Current Income and Disposable Income

Description of Social Status

Budget and Utility Function

Social Status and Propensities to Save and to Consume

2.11 Demand and Supply

The World Economic Dynamics

Comparati ve Dynami c Anal ysi s

Perturbations in the Poor Country’s Spirit of Capitalism

Perturbations in the Poor Country’s Conspicuous Consumption

Perturbations in the Rich Country’s Propensity to Save