Governments’ Debts And Public Goods In A Multi-Country. Growth Model With Tradable And Non-Tradable Goods

This study deals with dynamic relationships between global growth, trade, economic structural change, and government’s debts. Government debts are seldom theoretically modelled in the literature of global economic growth theory. We introduce governments’ debts and endogenous public good supplies into a general dynamic equilibrium growth model with multiple countries and free trades between countries. The model is developed by integrating the Solow-Uzawa growth model, the Oniki–Uzawa trade model, and Diamond’s growth model with government’s debt within a comprehensive framework. The model synthesizes these well-known economic models with Zhang’s utility function to determine household behavior. It is built for any number of national economies. Each national economy consists of one tradable, one non-tradable and one public sector. The model describes a dynamic interdependence between wealth accumulation, and division of labor, governments’ debts, national debts, and wealth and capital distribution under perfect competition. We demonstrate that the dynamics of the -country world economy can be described by differential equations. We simulate the model, demonstrating the existence of an equilibrium point, and showing instability of the equilibrium point. We also demonstrate how changes in some parameters affect short-run global economic development and the equilibrium point. Our comparative dynamic analyses provided some important insights into interactions between global economic growth, resource distributions, economic structures, and governments’ debts.