Costly Structural Change and Optimal Growth

Shawn Ni () and X. Wang ()

Economic Theory, 1995, vol. 6, issue 2, 305-22

Abstract: This paper studies the optimal growth of a developing economy that has a choice to expend a fixed amount of resource for a structural change that advances its production technology. It is shown that structural change is undertaken if capital stock is above a critical level. Economies undertaking structural change converge to a larger steady state and economies not undertaking structural change converge to a smaller steady state. The optimal policy correspondences and growth paths are characterized. The social optimum is shown implementable by a competitive equilibrium with lump-sum taxation.

Date: 1995
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