Optimal Growth Strategy under Dynamic Threshold

Cuong Le Van (), Çağrı Sağlam and Agah Turan
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Cuong Le Van: IPAG Business School, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, VCREME - Van Xuan Center of Research in Economics, Management and Environment
Agah Turan: Bilkent University [Ankara]

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We consider an economy in which the technology exhibits nonconvexities due to fixed costs associated with production. Taking into account the incentives for investment to decrease fixed costs, we characterize the circumstances under which an underdeveloped economy can catch up with the developing ones. We show that it is optimal to get rid of the fixed costs inherent in production in finite time provided that the initial level of fixed costs are not too high and the technology for reducing fixed costs is sufficiently efficient. Indeed, we obtain that even though the income disparities may be very persistent and can be perceived as poverty traps, economies with not very high initial fixed costs and sufficiently efficient technology for reducing fixed costs would ultimately converge to the same steady state level of per capita income.

Keywords: fixed costs; underdeveloped economies (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

Published in Journal of Public Economic Theory, 2016, ⟨10.1111/jpet.12167⟩

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Related works:
Journal Article: Optimal Growth Strategy under Dynamic Threshold (2016)
Working Paper: Optimal Growth Strategy under Dynamic Threshold (2016)
Working Paper: Optimal Growth Strategy under Dynamic Threshold (2016)
Working Paper: Optimal Growth Strategy Under Dynamic Threshold (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01302538

DOI: 10.1111/jpet.12167

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