A semi-endogenous growth model with public factors, imported capital goods, and limited export demand for developing countries

Jan Simon Hallonsten and Thomas Ziesemer ()

Journal of Applied Economics, 2019, vol. 22, issue 1, 380-402

Abstract: We build a semi-endogenous growth model for developing countries with non-rivalrous public factors, imported capital goods, and an export demand function. The model exhibits the three-way interaction between public and private investment and trade shown recently in the empirical literature. A parameter for government-investment inefficiency has transitional growth effects distorting between public investment and private capital, consumption, and exports, the latter biasing the terms of trade. Our analysis of a vector error-correction model (VECM) for Trinidad &Tobago shows that additional expenditure for public investment increases output less than taxes decrease per capita consumption and therefore is sub-optimal there. Both temporary and permanent shocks on public investment have level effects supporting semi-endogenous growth modeling and demonstrate that the VECM effects are in line with the logic of the theoretical model; terms of trade are endogenous.

Date: 2019
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DOI: 10.1080/15140326.2019.1627726

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