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Optimal growth with intermediate goods interdependence: A difference game approach

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  • Larrosa, Juan MC

Abstract

Two countries face a strategic interdependence in producing intermediate goods. Producing these intermediate goods requires both of domestic capital and another imported intermediate good. Individually they determine its balanced growth path by taking into account this interdependence. By allowing for strategic interactions in the analysis we adapted a two-agent dynamic setting and find an interior Markov Perfect Equilibrium (MPE) as well as an open-loop equilibrium. We find that main results resemble each other but growth rates will be higher when strategies are allowed to be revised dynamically.

Suggested Citation

  • Larrosa, Juan MC, 2007. "Optimal growth with intermediate goods interdependence: A difference game approach," MPRA Paper 4675, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:4675
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    File URL: https://mpra.ub.uni-muenchen.de/4675/1/MPRA_paper_4675.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Difference games; Economic growth; Intermediate goods;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F15 - International Economics - - Trade - - - Economic Integration

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