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History Vs. Expectations

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  • Paul Krugman

Abstract

In models with external economies, there are often two or more long run equilibria. Which equilibrium is chosen? Much of the literature presumes that "history" sets initial conditions which determine the outcome, but an alternative view stresses the role of "expectations", i.e. of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium.

Suggested Citation

  • Paul Krugman, 1989. "History Vs. Expectations," NBER Working Papers 2971, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2971
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    References listed on IDEAS

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    Cited by:

    1. Gary A. Dymski, 2004. "Poverty and Social Discrimination: A Spatial Keynesian Approach," Working Papers 002, Universidade Federal do Paraná, Department of Economics.
    2. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    3. E. Richard Gold & Jean‐Frédéric Morin & Erica Shadeed, 2019. "Does intellectual property lead to economic growth? Insights from a novel IP dataset," Regulation & Governance, John Wiley & Sons, vol. 13(1), pages 107-124, March.
    4. Esteban Jaimovich, 2006. "Sectors Expansion, Allocation of Talent and Adverse Selection in Development," DEGIT Conference Papers c011_018, DEGIT, Dynamics, Economic Growth, and International Trade.

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