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Economic Growth and Sectoral Change under Resource Reallocation Costs

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Abstract

A general growth model with explicit resource reallocation costs is set up. A new feature is the property of hysteresis (i.e. a continuum of stationary equilibria) in closed-economy growth models. Employing a linear model the hysteresis range and the consequences for the long-run growth rate are determined analytically. The most important conclusions are the following: (1) An economy’s long-run position may depend critically on the initial intersectoral allocation pattern as well as on the efficiency of the resource reallocation sector; (2) if we interpret the resource reallocation sector as a specific part of the education sector, there is a straightforward possibility for the government to reduce the range of hysteresis and hence the dependence on initial conditions; (3) international trade is an important device to overcome the negative consequences of high resource reallocation costs for long-run growth.

Suggested Citation

  • Thomas M. Steger, 2003. "Economic Growth and Sectoral Change under Resource Reallocation Costs," CER-ETH Economics working paper series 03/30, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:03-30
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    Cited by:

    1. Simone Valente, 2005. "Genuine dissaving and optimal growth," CER-ETH Economics working paper series 05/38, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    2. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany.
    3. Valente, Simone, 2008. "Intergenerational transfers, lifetime welfare, and resource preservation," Environment and Development Economics, Cambridge University Press, vol. 13(1), pages 53-78, February.
    4. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.

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    More about this item

    Keywords

    Sectoral change; economic growth; resource reallocation costs; hysteresis; multiplicity of equilibria;
    All these keywords.

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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