Takeuchi, Nobuyuki (2010): Industrialization and the role of government.
Download (248Kb) | Preview
We construct a two-sector endogenous growth model to examine the role of government in industrialization. Three main features of this model are (a) household preference is non-homothetic; (b) government’s sector-specific spending is introduced as a production factor and (c) technological progress occurs only in the manufacturing sector through learning-by-doing. By using the model with these features, we derive the optimal policy for government resource allocation, optimal tax rate and share of government spending for each sector, to maximize the household’s utility. In addition, we examine the dynamics of the model. The model reveals that (a) increments in both agricultural productivity and manufacturing productivity cause labour to move from the agricultural sector to the manufacturing sector; (b) depending on the relative elasticity of production with respect to government’s spending between the two sectors, the optimal tax rate will shrink or expand with the passage of time and will stay at a level of balanced growth path in the long run and (c) as the industrialization progresses, the optimal share of government spending for the agricultural sector will decline.
|Item Type:||MPRA Paper|
|Original Title:||Industrialization and the role of government|
|Keywords:||industrialization; productive government spending; learning-by-doing; economic growth|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
|Depositing User:||Nobuyuki Takeuchi|
|Date Deposited:||18. Nov 2010 20:45|
|Last Modified:||13. Feb 2013 04:36|
Barro, R. J. 1990. Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy 98, no. 5: S103-S125.
Barro, R. J. and X. Sala-i-Martin. 1992. Public Finance in Models of Economic Growth. Review of Economic Studies 59, no. 4: 645-661.
Barro, R. J. and X. Sala-i-Martin. 1995. Economic Growth. N.Y.: McGraw-Hill.
Chang, J. J., B. L. Chen and M. Hsu. 2006. Agricultural Productivity and Economic Growth: Role of Tax Revenues and Infrastructures. Southern Economic Journal 72, no. 4: 891-914.
Echevarria, C. 1997. Changes in Sectoral Composition Associated with Economic Growth. International Economic Review 38, no. 2: 431-452.
Echevarria, C. 2000. Non-homothetic preferences and growth. Journal of International Trade & Economic Development 9, no. 2: 151-171.
Eswaran, M. and A. Kotwal. 1993. A Theory of Real Wage Growth in LDCs. Journal of Development Economics 42, no. 2: 243-269.
Fei, J. C. H. and G. Ranis. 1964. Development of the Labor Surplus Economy: Theory and Policy. Homewood, IL: Irwin.
Futagami, K., Y. Morita and A. Shibata. 1993. Dynamic Analysis of an Endogenous Growth Model with Public Capital. Scandinavian Journal of Economics 95, no. 4: 607-625.
Gollin, D., S. Parente and R. Rogerson. 2002. The Role of Agriculture in Development. American Economic Review 92, no. 2: 160-164.
Jorgenson, D. W. 1961. The Development of Dual Economy. Economic Journal 71, no. 282: 309-334.
Jorgenson, D. W. 1967. Surplus Agricultural Labor and the Development of a Dual Economy. Oxford Economic Papers 19, no. 3: 288-312.
Kanbur, S. M. R. and J. McIntosh. 1988. Dual Economy Models: Retrospect and Prospect. Bulletin of Economic Research 40, no. 2: 83-113.
Kongsamut, P., S. Rebelo and D. Xie. 2001. Beyond Balanced Growth. Review of Economic Studies 68, no. 4: 869-882.
Lewis, W. A. 1954 Economic Development with Unlimited Supplies of Labour. Manchester School of Economic and Social Studies 22: 139-191.
Matsuyama, K. 1992. Agricultural Productivity, Comparative Advantage, and Economic Growth. Journal of Economic Theory 58, no. 2: 317-334.
Niho, Y. 1974. Population Growth, Agricultural Capital, and the Development of a Dual Economy. American Economic Review 64, no. 6: 1077-1085.
Ortiz, C. H. 2004. An economic growth model showing government spending with reference to Colombia and learning-by-doing. Colombian Economic Journal 2, no. 1: 157-188.
Romer, P. M. 1986. Increasing Returns and Long-Run Growth. Journal of Political Economy 94, no. 5: 1002-1037.
Sato, R and Y. Niho. 1971. Population Growth and the Development of a Dual Economy. Oxford Economic Papers 23, no. 3: 418-436.
Temple, J. R. W. 2005. Dual Economy Models: A Primer for Growth Economists. Manchester School 73, no. 4: 435-478.
Turnovsky, S. J. 1997. Fiscal Policy in a Growing Economy with Public Capital. Macroeconomic Dynamics 1, no. 03: 615-639.
Turnovsky, S. J. 2000. Methods of Macroeconomic Dynamics. 2nd ed.: MIT Press.
Wong, Kar-yiu and C. K. Yip. 1999. Industrialization, Economic Growth, and International Trade. Review of International Economics 7, no. 3: 522-540.