Optimal growth with intermediate goods interdependence: A difference game approach

Juan Larrosa ()

MPRA Paper from University Library of Munich, Germany

Abstract: Two countries face a strategic interdependence in producing intermediate goods. Producing these intermediate goods requires both of domestic capital and another imported intermediate good. Individually they determine its balanced growth path by taking into account this interdependence. By allowing for strategic interactions in the analysis we adapted a two-agent dynamic setting and find an interior Markov Perfect Equilibrium (MPE) as well as an open-loop equilibrium. We find that main results resemble each other but growth rates will be higher when strategies are allowed to be revised dynamically.

Keywords: Difference games; Economic growth; Intermediate goods (search for similar items in EconPapers)
JEL-codes: C73 F15 (search for similar items in EconPapers)
Date: 2007-08-30
New Economics Papers: this item is included in nep-gth
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