Productivity-Enhancing Effect of Government Expenditure in a Two-Sector Intertemporal Optimizing Model

Young-Jae Kim
Additional contact information
Young-Jae Kim: Kyungil University

Korean Economic Review, 1998, vol. 14, 339-358

Abstract: This paper analyzes the productivity-enhancing effects associated with the government expenditure y directly applying it to the production function as one of the factors of production. Since the model incorporates a foreign-capital-dependent developing economy in an intertemporal optimizing setup, it shows an explicit dynamic relationship between external debt and capital stock accumulation. Unlike the demand-side analysis of the government expenditure, it is found that the increase in government expenditure accelerates the rate of investment, which results in more current account deficits. This implies the government expenditure affects the dynamic variables, whereas the demand-side analysis of government expenditure does not. In addition, the rise in the government expenditure may increase consumption under a certain restraint through the change in the outputs, not through the change in the aggregate demand. This is because the supply-side ejj‘ect of the government expenditure dominates the demand-side eï¬ ect. In general, consumption falls in a demand-side analysis of the government expenditure.

Keywords: Productivity-enhancing Effect; Intertemporal Optimization (search for similar items in EconPapers)
JEL-codes: E62 F32 O11 (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations:

Downloads: (external link)
http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-199812-14-2-07.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kea:keappr:ker-199812-14-2-07

Access Statistics for this article

Korean Economic Review is currently edited by Kyung Hwan Baik

More articles in Korean Economic Review from Korean Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by KEA ().