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State Dependence in Optimal Factor Accumulation

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  • Allan Drazen

Abstract

A general model of optimal factor accumulation over an infinite horizon is presented in which the steady state depends on initial conditions and on the history of the system. In contrast to conventional results, any change in initial conditions or any temporary shock in the convergence process will in general change the optimal steady state. The result is shown to arise, when the discount rate is positive, from standard assumptions made about the technology of converting heterogeneous factors from one type to another.

Suggested Citation

  • Allan Drazen, 1985. "State Dependence in Optimal Factor Accumulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 357-372.
    • Handle: RePEc:oup:qjecon:v:100:y:1985:i:2:p:357-372.
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    File URL: http://hdl.handle.net/10.2307/1885386
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    Cited by:

    1. Drazen, Allan, 1984. "Cyclical Determinants of the Natural Level of Economic Activity," Foerder Institute for Economic Research Working Papers 275378, Tel-Aviv University > Foerder Institute for Economic Research.
    2. Helpman, Elhanan, 1989. "The Non-Competitive Theory of International Trade and Trade Policy," Foerder Institute for Economic Research Working Papers 275468, Tel-Aviv University > Foerder Institute for Economic Research.
    3. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.

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