Complementarities, Costly Investment and Multiple Equilibria in a One-Sector Endogenous Growth Model

Maria Thompson

No 7/2003, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: In this paper we develop a multiple equilibria one-sector R&D-based growth model, in which the key aspects are the assumption of complementarities between capital goods in the production function and the assumption of costly investment in capital. This second assumption is new to the R&D-based literature. The equilibrium solutions are obtained when the Preferences curve, which mirrors consumers’ savings decisions, and the Technology curve, which represents equilibria on the production side, cross. The combination of the two key assumptions produces a non-linear Technology curve, which consequently crosses the Preferences curve more than once, thus generating multiple equilibria. A numerical solutions exercise obtains two equilibria. Application of the stability under learning criterion allows for the identification of the two equilibria as stable. Expectations can lead the economy to either the equilibrium characterised by high-growth and high-interest rates, or to the equilibrium characterised by low-growth and low-interest rates. Hence, with this model, we wish to contribute to endogenous growth literature by providing a mechanism to explain how an economy can experience multiple equilibria situations.

Keywords: Growth; R&D; complementarities; costly investment; multiple equilibria. (search for similar items in EconPapers)
JEL-codes: D5 D9 O0 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-dev, nep-dge and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www3.eeg.uminho.pt/economia/nipe/docs/2003/NIPE_WP_7_2003.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:nip:nipewp:7/2003

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NIPE Working Papers from NIPE - Universidade do Minho Núcleo de Investigação em Políticas Económicas e Empresariais, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal. Contact information at EDIRC.
Bibliographic data for series maintained by NIPE ().