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Inventi Rapid - International Trade

Articles

  • Inventi:mit/14/11
    GLOBAL ECONOMIC GROWTH WITH NATIONAL PUBLIC GOODS, EXTERNALITIES AND CONGESTION
    Wei-Bin Zhang

    The purpose of this paper is to address issues related to global economic growth with national preferences and fiscal policies. We emphasize the role of public sector performance in the global economy. We propose a multi-country growth model of capital accumulation with national public goods, externalities, congestion and fiscal policies. We find the differential equations to describe the global economy and simulate the model with the Cobb-Douglas production functions of the three economies. Our comparative statics analysis provides some important insights on economic globalization. For instance, the benchmark case of a rise in tax on the most advanced country’s output yields an expansion in the global economy. The total wealth, capital stock, and outputs of the two sectors, wage rate, output per unit of work time, per capita expenditure on public good, per capita consumption level and wealth in the most advanced economy are increased, while the corresponding variables in the other two economies are reduced. We also show that a technological improvement in the least advanced economy benefits the least advanced economy but harms the other two economies.

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