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The dynamics of economic convergence: The role of alternative investment decisions

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  • Bruha, Jan
  • Podpiera, Jirí

Abstract

In this paper we evaluate how various investment decisions explain the macroeconomic dynamics of European transition countries. We introduce quality investment decisions into a model with other two standard investment margins assumed in the advanced trade literature, i.e., investment in new varieties and in export eligibility. We show that the standard investment margins are not sufficient to simultaneously match the dynamics in the macroeconomic variables, especially the export performance and the real exchange rate. In contrast, the extended model with quality investment provides reconciliation.

Suggested Citation

  • Bruha, Jan & Podpiera, Jirí, 2011. "The dynamics of economic convergence: The role of alternative investment decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1032-1044, July.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1032-1044
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    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
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    3. repec:cnb:ocpubv:rb09/2 is not listed on IDEAS
    4. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    5. repec:cnb:ocpubv:as15 is not listed on IDEAS
    6. repec:cnb:ocpubv:rb10/1 is not listed on IDEAS
    7. repec:cnb:ocpubv:as17 is not listed on IDEAS
    8. Jaromir Tonner & Jiri Polansky & Osvald Vašíèek, 2011. "Parameter Drifting in a DSGE Model Estimated on Czech Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(5), pages 510-524, November.
    9. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    10. repec:cnb:ocpubv:rb11/1 is not listed on IDEAS

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    More about this item

    Keywords

    Two-country modeling Convergence Real exchange rate;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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