Balanced Growth Equilibrium Research Articles

Misbalances in Russian agricultural corporations economic growth

The sustainability and balance of companies’ growth, especially if they are systemically important for the national economy, is essential for ensuring sustainable development. The article analyzes the balanced growth equilibrium rule for Russian corporations from leading industries: oil and gas industry, transport, metallurgy, and retail. Paper used the data of the official consolidated financial statements for 2011-2019. It is concluded that Russian corporations’ growth is not balanced, which can have negative consequences both for their long-term development and for their stakeholders: employees, suppliers, and local communities. In 2019, no corporation demonstrated a balanced growth for key economic indicators. A misbalance in growth is typically observed in two indicators - sales revenue and profit on sales. The paper concludes that tendency highlighted leads to weak in investment and other important activities, including sustainable development goal achievement.

Non-constant Discounting, Social Welfare and Endogenous Growth with Pollution Externalities

We analyze the effect of non-constant discounting on economic growth and social welfare in an endogenous growth model with pollution externalities. For time-consistent agents, who play a game against their future selves, the balanced growth equilibrium is compared to the case of standard exponential discounting. A decaying instantaneous discount rate leads to slower growth in a centralized economy, while its effect for a competitive economy is ambiguous. Interestingly, when comparing the planned and the competitive equilibria, the assumption of non-constant discounting may imply greater social welfare in the market equilibrium under two conditions. First, the pollution externality on utility must be large with respect to the externality on production, so that the central planner slows down growth below the growth rate in the market economy. Secondly, individuals’ degree of impatience should decrease sharply with the time distance from the present. Concerning policy implications, we observe that under log-utility policies may not be necessary, while for an isoelastic utility with an elasticity lower than one, introducing policy instruments is less effective than under constant discounting.

Public debt, positional concerns, and wealth inequality

We consider an AK growth model with positional concerns and public debt financed by distortionary income taxes. We show that if positional concerns are not too strong, there is a threshold level of the debt-to-GDP ratio. For the debt-to-GDP ratio below this level, the economy converges to a unique egalitarian balanced-growth equilibrium, whereas if this ratio is above the threshold level, the economy eventually settles on a two-class balanced-growth equilibrium. The rate of growth in the egalitarian equilibrium is higher than that in any possible two-class equilibrium. Thus, a reduction in public debt may cause the economy to switch from the two-class regime to the egalitarian regime and accelerate growth. Our results also suggest that policies aimed at reducing initial inequality using public debt may, in fact, increase wealth inequality in the long run.

Growth and ideas in a perfectly competitive world

Are ideas, increasing returns to scale, and perfect competition compatible? To address this fundamental question, I build a purposefully simple model of growth and ideas with two salient features: (i) firms raise capital from shareholders, and (ii) the production function shows decreasing returns to scale in the stock of ideas and in labor. I obtain two noticeable results from this model. First, contrary to conventional wisdom, I show that ideas, increasing returns to scale, and a competitive equilibrium are tenable. Second, I underline that the model has a balanced growth equilibrium similar to the one founded in the semi-endogenous models.

Bubbles, growth and imperfection of credit market in a two-country model

This study extends Hirano and Yanagawa (Rev Econ Stud 84(1):406–443, 2017) to an asymmetric two-country model and examines bubbles effects on each country’s long-run economic growth rate. This study also provides numerical examples with respect to the relationship between each country’s growth rate and their financial frictions in the balanced growth equilibria with bubbles and without bubbles. It shows that foreign bubbles have positive and negative effects on both countries’ growth rates, and which effect dominates depends on the level of financial development in both countries. In this study, the positive effect of bubbles tends to dominate when the total level of financial frictions in both countries is relatively low. When the total effect of bubbles on the growth rate is positive, the burst of foreign bubbles leads to a decrease in the growth rate in both countries. This implies that there is a positive correlation between foreign bubbles and the domestic as well as the foreign country’s growth rate.

Regularity of a general equilibrium in a model with infinite past and future

We develop easy-to-verify conditions to assure that a comparative statics exercise in a dynamic general equilibrium model is feasible, i.e., the implicit function theorem is applicable. Consider an equilibrium equation, ϒ(k,E)=k of a model where an equilibrium variable (k) is a continuous bounded function of time, real line, and the policy parameter (E) is a locally integrable function of time. The key conditions are time invariance of ϒ and the requirement that the Fourier transform of the derivative of ϒ with respect to k does not return unity. Further, in a general constant-returns-to-scale production and homogeneous life-time-utility overlapping generations model we show that the first condition is satisfied at a balanced growth equilibrium and the second condition is satisfied for “almost all” policies that give rise to such equilibria.

REGULARITY AND STABILITY OF EQUILIBRIA IN AN OVERLAPPING GENERATIONS GROWTH MODEL

In an exogenous-growth economy with overlapping generations, the Cobb–Douglas production, any positive life-cycle productivity, and time-separable constant elasticity of substitution (CES) utility, we analyze local stability of a balanced growth equilibrium (BGE) with respect to changes in consumption endowments, which could be interpreted as a transfer policy. We show that generically, in the space of parameters, equilibria around a BGE are locally unique and are locally differentiable functions of endowments, with derivatives given by kernels. Furthermore, those equilibria are stable in the sense that the effects of temporary changes decay exponentially toward ±∞.

Economic growth and property rights on natural resources

We consider two models of economic growth with exhaustible natural resources and agents heterogeneous in their time preferences. In the first model, we assume private ownership of natural resources and show that every competitive equilibrium converges to a balanced-growth equilibrium with the long-run rate of growth being determined by the discount factor of the most patient agents. In the second model, natural resources are public property and the resource extraction rate is determined by majority voting. For this model, we define an intertemporal voting equilibrium and prove that it also converges to a balanced-growth equilibrium. In this scenario, the long-run rate of growth is determined by the median discount factor. Our results suggest that if the most patient agents do not constitute a majority of the population, private ownership of natural resources results in a higher rate of growth than public ownership. At the same time, private ownership leads to higher inequality than public ownership, and if inequality impedes growth, then the public property regime is likely to result in a higher long-run rate of growth. However, an appropriate redistributive policy can eliminate the negative impact of inequality on growth.

Growth and distribution in a model with endogenous time preferences and borrowing constraints

This paper proposes an AK-model with endogenous time preferences and borrowing constraints. It is assumed that the subjective discount factor of a household is an increasing function of its relative income. First, we describe the structure of balanced-growth equilibrium paths, on which the population splits into two groups: the rich and the poor. Secondly, we study sliding equilibrium paths, show that they become balanced from some time onwards and that eventually all the capital is owned by those households that were the richest at the initial state. It follows that the long-run rate of growth depends on the initial distribution of wealth and income.

Can sustained growth be attained through trading exhaustible resources for foreign research?

We analyze the existence and the stability of a sustained balanced growth equilibrium (SBE) in a model of two non-homogeneous trading economies. A technological leader country which sells patents of new intermediate products in exchange for an exhaustible resource extracted by a technological follower trade partner. Considering a growth-essential resource, the ‘knife-edge’ assumption of exactly constant returns to scale (CRS) to manmade inputs can be alleviated, and the scale effects associated with R&D-based growth models overcome. A fully endogenous SBE is proven to exist, although its stability turns out to be a ‘knife-edge’ possibility. The long-run equilibrium is saddle-path stable assuming CRS in manmade inputs. Conversely, considering increasing returns to scale together with a completely specialized two-country trade, the equilibrium could be reached only if the two economies initially guard a particular relation, described by a particular subset of the state space.

Engines of Growth: Education and Innovation

Summary The paper presents a dynamic general-equilibrium model of education, quality and variety innovation, and scale-invariant growth. We consider endogenous human-capital accumulation in an educational sector and quality and variety innovation in two separate R&D sectors. In the balanced growth equilibrium education and innovation appear as in-line engines of growth and government can accelerate growth by subsidizing education or by enhancing the effectiveness of the educational sector.

MONEY, SOCIAL STATUS AND ENDOGENOUS GROWTH IN A GENERALIZED CASH‐IN‐ADVANCE MODEL

AbstractThis paper analytically examines the equilibrium growth effect of money/inflation in a standard one‐sector AK model of endogenous growth with the most generalized cash‐in‐advance constraint and relative wealth‐induced preferences for social status. We show that on the economy's unique balanced growth equilibrium path, the sign of the correlation between money and output growth depends crucially on: (i) the intertemporal elasticity of substitution in consumption; and (ii) the liquidity‐constrained ratio of consumption to investment expenditure. Moreover, our model economy always exhibits a positive output–growth effect in response to changes of the strength for social status. We also undertake numerical experiments to assess the quantitative importance of our theoretical results under an empirically plausible set of parameters.

INTERGENERATIONAL EQUITY AND THE DISCOUNT RATE FOR POLICY ANALYSIS

For two independent principles of intergenerational equity, the implied discount rate equals the growth rate of real per capita income, say, 2%, thus falling right into the range suggested by the U.S. Office of Management and Budget. To prove this, we develop a simple tool to evaluate small policy changes affecting several generations, by reducing the dynamic problem to a static one. A necessary condition is time invariance, which is satisfied by any common solution concept in an overlapping-generations model with exogenous growth. This tool is applied to derive the discount rate for cost–benefit analysis under two different utilitarian welfare functions: classical and relative. It is only with relative utilitarianism, and assuming time-invariance of the set of alternatives (policies), that the discount rate is well defined for a heterogeneous society at a balanced growth equilibrium, is corroborated by an independent principle equating values of human lives, and equals the growth rate of real per-capita income.

Social status, human capital formation and super-neutrality in a two-sector monetary economy

In this paper, we study how social status affects the impact of monetary policy on the long-run growth rate in a two-sector monetary economy with human capital accumulation, and find that the super-neutrality of money, with regard to the growth rate of the economy depends on the formation of human capital. In an economy with Lucas-type human capital formation, money is super-neutral; however, for an economy in which both physical and human capital are used as inputs for human capital accumulation, the money growth rate will have a positive effect on the long-run economic growth rate. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.

Social status and long-run effects of monetary policy in a two-sector monetary economy of endogenous growth

We develop a two-sector monetary economy with human capital accumulation and a cash constraint applied to both consumption and investment to examine the ways in which social status affects the impact of monetary policy on the long-run economic growth rate. Our findings suggest that the formation of human capital is an important determinant to the super-neutrality of money in the growth-rate sense. Within an economy with Lucas-type human capital formation, money is super-neutral; however, within an economy where human capital accumulation formation is more generalized, and in which both physical and human capital are used as inputs, the growth rate in money will have a negative effect on the long-run growth rate of the economy. The existence, uniqueness and saddle-path stability of balanced-growth equilibrium are also examined.

Education, Technological Progress and Economic Growth

An important role of education - and the resultant accumulation of human capital - for a less-developed economy is to facilitate technology diffusion in order for it to catch up with developed economies. This paper presents a model linking education, the accumulation of physical capital and technological progress. In the model, investment in education and the accumulation of physical capital are complementary, and intertwine with the technology progress through related effects on technology diffusion and the expansion of the technology frontier. The allocation of effort to education, the optimal savings rate and the technology gap are endogenously determined in the steady-state balanced growth equilibrium.

Health, infrastructure, environment and endogenous growth

This paper attempts to develop a model of endogenous growth with special focus on the role of health capital, public infrastructure and environmental pollution. It is an extension of the model of Agenor (2008) who does not consider environmental pollution. We analyze properties of optimal fiscal policy in the steady-state growth equilibrium when the level of production of the final good is the source of pollution. Tax revenue of the government is channelized into three expenditure heads-health expenditure, pollution abatement expenditure and public infrastructure expenditure. It is found that the optimum ratio of public infrastructural expenditure to national income in the balanced growth equilibrium is less than the competitive output share of the public input; and it varies inversely with the magnitude of the emission-output coefficient. There is no conflict between the social welfare maximizing solution and the growth rate maximizing solution in the balanced growth equilibrium. There may exist indeterminacy in the transitional growth path converging to the unique steady-state equilibrium point that never satisfies saddle-point stability. The market economy growth rate is not necessarily less than the socially efficient growth rate; and the relationship between these two depends on the magnitude of the emission-output coefficient.

Intergenerational human capital evolution, local public good preferences, and stratification

This paper considers heterogeneities in preferences over the local public good, human capital formation, and residential locations as primary underlying forces of economic stratification in an endogenously growing economy. We construct a two-period overlapping-generations model with two regions and various forms of human capital externalities where altruistic agents determine intertemporal allocation of time, investment in a child's education and residential location. We fully characterize a balanced growth equilibrium with no migration across generations to elaborate on how changes in preference, human capital accumulation, production, and interregional commuting parameters may affect the equilibrium stratification outcome in the long run.

A two-country dynamic Heckscher–Ohlin model with physical and human capital accumulation

We study a two-country endogenous growth model in which the long-run growth is propelled by the accumulation of physical and human capital. We show that in the integrated world economy, there exists a unique and locally saddlepoint stable balanced growth equilibrium. We also show that the incorporation of adjustment costs in the process of human capital accumulation leads to a lower long-run growth rate. We then show that, in the 2-country world economy with international trade, balanced growth is possible. Finally, we present a dynamic Heckscher–Ohlin theorem concerning the pattern of international trade.

Hicks meets Hotelling: the direction of technical change in capital–resource economies

We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.