Non-convex Aggregate Technology and Optimal Economic Growth

N. M. Hung (), Cuong Le van and Philippe Michel
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N. M. Hung: Departement d'Economique, Université Laval, Cité Universitaire, St Foy , Qc, G1K 7P4, Canada

No 5, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: This paper examines a model of optimal growth where the aggregation of two separate well behaved and concave production technologies exhibits a basic non-convexity. First, we consider the case of strictly concave utility function: when the discount rate is either low enough or high enough, there will be one steady state equilibrium toward which the convergence of the optimal paths is monotone and asymptotic. When the discount rate is in some intermediate range, we find sufficient conditions for having either one equilibrium or multiple equilibria steady state. Depending to whether the initial capital per capita is located with respect to a critical value, the optimal paths converge to one single appropriate equilibrium steady state. This state might be a poverty trap with low per capita capital, which acts as the extinction state encountered in earlier studies focused on S-shapes production functions. Second, we consider the case of linear utility and provide sufficient conditions to have either unique or two steady states when the discount rate is in some intermediate range . In the latter case, we give conditions under which the above critical value might not exist, and the economy attains one steady state in Â…nite time, then stays at the other steady state afterward.

Pages: 21 pages
Date: 2008
New Economics Papers: this item is included in nep-dge
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Working Paper: Non-convex Aggregate Technology and Optimal Economic Growth (2009)
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