International policy coordination and growth prospects of developing countries: An optimal control application

Abstract

This paper estimates the gains from implementing cooperative policies among the North, the South, and OPEC. This is accomplished by applying optimal control to an econometric model of a three-region world economy. The results suggest that while a worldwide recovery is feasible, not all regions benefit equally from it. Motivated by these findings, the paper also examines how a shift in the regional balance of power in favor of the South improves their growth prospects.