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Technology choice, externalities in production, and a chaotic middle-income trap

Author

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  • Takao Asano

    (Okayama University)

  • Akihisa Shibata

    (Kyoto University, Yoshida, Sakyo-ku)

  • Masanori Yokoo

    (Okayama University)

Abstract

We incorporate the external effects of capital in production and endogenous technology choice into the standard overlapping generations model. We demonstrate that our model can exhibit a poverty trap, a middle-income trap, and perpetual growth paths. We also show that, under some economic conditions, an economy exhibits all three of these phenomena, depending on its initial capital level, and that the economy caught in the middle-income trap can exhibit chaotic fluctuations in the long run. This is a stark contrast to the result obtained by Umezuki and Yokoo (J Econ Dyn Control 100:164-175, 2019a) that we cannot observe any chaotic fluctuations. Because the model of Umezuki and Yokoo (2019) is a special case of our model in the sense that there is no externality in production, our result means that we need the combination of technology choice and externalities in production to obtain chaotic fluctuations in the standard overlapping generations model with Cobb-Douglas technologies.

Suggested Citation

  • Takao Asano & Akihisa Shibata & Masanori Yokoo, 2024. "Technology choice, externalities in production, and a chaotic middle-income trap," Journal of Economics, Springer, vol. 141(1), pages 29-56, January.
  • Handle: RePEc:kap:jeczfn:v:141:y:2024:i:1:d:10.1007_s00712-023-00844-9
    DOI: 10.1007/s00712-023-00844-9
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    More about this item

    Keywords

    External effect; Technology choice; Overlapping generations model; Middle-income trap; Chaos;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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