GOVERNMENTS’ DEBTS AND PUBLIC GOODS IN A MULTI-COUNTRY GROWTH MODEL WITH TRADABLE AND NON-TRADABLE GOODS

Wei-Bin Zhang

Abstract


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.

Full Text:

PDF

References


Azariadis, C. (1993) Intertemporal Macroeconomics. Oxford: Blackwell.

Barro, R.J. (1990) Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy 98, S103-25.

Barro, R.J. (2013) Education and Economic Growth. Annals of Economics and Finance 14 (2), 301–28.

Barro, R., Mankiw, N.G., Sala-i-Martin, X. (1995) Capital Mobility in Neoclassical Models of Growth. American Economic Review 85, 103-16.

Barro, R.J. and X. Sala-i-Martin (1995) Economic Growth. New York: McGraw-Hill, Inc.

Blanchard, O.J. and Fischer, S. (1989) Lectures in Macroeconomics. MA., Cambridge: MIT Press.

Burmeister, E. and Dobell, A.R. (1970) Mathematical Theories of Economic Growth. London: Collier Macmillan Publishers.

Chalk, N. (2000) The Sustainability of Bond-Financed Deficits: An Overlapping Generations Approach. Journal of Monetary Economics 45, 293–28.

Cohen, D., Sachs, J. (1986) Growth and External Debt under Risk of Debt Repudiation. European Economic Review 30, 529-60.

De la Croix, D. and Michel, P. (2002) A Theory of Economic Growth, Dynamics and Policy in Overlapping Generations. Cambridge: Cambridge University Press.

Diamond, P. (1965) National Debt in a Neoclassical Growth Model. American Economic Review 55, 1126–50.

Farmer, R. (1986) Deficits and Cycles. Journal of Economic Theory 40, 77–88.

Frenkel, J.A. and Razin, A. (1987) Fiscal Policy and the World Economy. MA., Cambridge: MIT Press.

Giannitsarou, C. (2007) Balanced Budget Rules and Aggregate Instability: The Role of Consumption Taxes. Economic Journal 117, 1423–35.

Gómez, M.A. (2008) Fiscal Policy, Congestion, and Endogenous Growth. Journal of Public Economic Theory 10, 595-622.

Guo, J., and Harrison, S. (2004) Balanced-Budget Rules and Macroeconomic (In)Stability. Journal of Economic Theory 119, 357–63.

Ikeda, S. and Ono, Y. (1992) Macroeconomic Dynamics in a Multi-Country Economy - A Dynamic Optimization Approach. International Economic Review 33, 629-644.

Mendoza, E.G. (1995) The Terms of Trade, the Real Exchange Rate, and Economic Fuctuations. International Economic Review 36, 101–137.

Nishimura, K. and Shimomura, K. (2002) Trade and Indeterminacy in a Dynamic General Equilibrium Model. Journal of Economic Theory 105, 244-60.

Oniki, H. and Uzawa, H. (1965) Patterns of Trade and Investment in a Dynamic Model of International Trade. Review of Economic Studies 32, 15-38.

Park, H. (2009) Ramsey Fiscal Policy and Endogenous Growth. Economic Theory 39, 377-98.

Semmler, W. and Sieveking, M. (2000) Critical Debt and Debt Dynamics. Journal of Economic Dynamics & Control 24, 1121-44.

Sorger, G. (2002) On the Multi-Country Version of the Solow-Swan Model. The Japanese Economic Review 54, 146-64.

Stockman, A.C. and Tesar, L.L. (1995) Tastes and Technology in a Two-country Model of the Business Cycle: Explaining International Comovements. American Economic Review 85, 168–85.

Turnovsky, S.J. (2000) Fiscal Policy, Elastic Labor Supply, and Endogenous Growth. Journal of Monetary Economics 45, 185-210.

Turnovsky, S.J. (2004) The Transitional Dynamics of Fiscal Policy: Long-Run Capital Accumulation and Growth. Journal of Money, Credit, and Banking 36, 883-910.

Turnovsky, B.J. and Sen, P. (1991) Fiscal Policy, Capital Accumulation, and Debt in an Open Economy. Oxford Economic Papers 43, 1-24.

Uzawa, H. (1961) On a Two-Sector Model of Economic Growth. Review of Economic Studies 29, 47-70.

Uzawa, H. (1963) On a Two-Sector Model of Economic Growth I. Review of Economic Studies 30, 105-18.

Zhang, W.B. (1993) Woman’s Labor Participation and Economic Growth - Creativity, Knowledge Utilization and Family Preference. Economics Letters 42, 105-10.

Zhang, W.B. (2005) Economic Growth Theory. London: Ashgate.

Zhang, W.B. (2014) Tradable, Non-tradable and Education Sectors in a Multi-Country Economic Growth Model with Endogenous Wealth and Human Capital. Economic Research Guardian 4(2), 65-85.

Zhang, W.B. (2016) Public Debt and Economic Growth in Uzawa’s Two-Sector Model with Public Goods. International Journal of Economic Sciences 5(4), 52-73.


Refbacks

  • There are currently no refbacks.




Creative Commons License

All the articles published in JSEG are licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.