Global Business Cycles in a Neoclassical Growth Model with Spirits of Capitalism

Abstract

The purpose of the paper is to identify business cycles due to exogenous shocks in a global economic growth model with endogenous social status, endogenous preferences, and wealth accumulation. The basic model by Zhang (2017) is built on the basis of the Solow model, the Uzawa two-sector model, the Oniki-Uzawa trade model, and some ideas in the literature of economic growth with endogenous growth. The paper introduces various time-dependent exogenous shocks to Zhang’s model. We show the existence of business cycles with different exogenous periodic shocks. Our comparative dynamic analysis shows, for instance, how exogenous changes in the propensities lead to global business cycles and oscillations in global income and wealth distribution. The unique contribution is to identify real business cycles in the neoclassical growth model with endogenous preference built on microeconomic foundation.