On public investment, long-run growth, and the real exchange rate |
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Authors: | Ghosh Sugata; Mourmouras Iannis A |
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Institution: | Cardiff Business School, Cardiff University, Colum Drive, Cardiff, CF10 3EU; ghosh{at}cardiff.ac.uk
Department of Economics, Aristotle University of Thessaloniki, Greece; iam{at}econ.auth.gr |
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Abstract: | This paper extends the Barro (1990) endogenous growth modelwith productive government services to a two-country world withperfect capital mobility, populated by optimising agents withuncertain lifetimes. It shows that increases in government spendingon infrastructure for the home country result in higher growthrates and a terms of trade improvement. Both these effects arereversed after a point, showing that a hump-shaped curvesimilarto the Barro curve, but with different propertiescanbe obtained here even with lump-sum taxes. We also examine thewelfare implications of public investment policies, and characterisethe world economy's dynamics. |
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