Nonergodic Economic Growth

50 Pages Posted: 11 Nov 2000 Last revised: 1 Sep 2010

See all articles by Steven N. Durlauf

Steven N. Durlauf

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: May 1991

Abstract

This paper explores the role of complementarities and coordination failure in economic growth. We analyze the evolution composed of a countable set of infinitely-lived heterogenous industries. Individual industries exhibit nonconvexities in production and are linked across time through localized technological complementarities. Each industry employs one of two production techniques. One technique is more efficient in using capital than the other, but requires the payment of a fixed capital cost. Both techniques exhibit technological complementarities in the sense that the productivity of capital invested in a technique is a function of the technique choices made by various industries the previous period. These complementarities, when strong enough, interact with incompleteness of markets to produce multiple Pareto-rankable equilibria in ling run economic activity. The equilibria have a simple probabilistic structure that demonstrates how localized coordination failures can affect the aggregate equilibrium. The model is capable of generating interesting aggregate dynamics as coordination problems become the source of aggregate volatility. Modifications of the model illustrate how leading sectors can cause a takeoff into high growth.

Suggested Citation

Durlauf, Steven N., Nonergodic Economic Growth (May 1991). NBER Working Paper No. w3719. Available at SSRN: https://ssrn.com/abstract=243222

Steven N. Durlauf (Contact Author)

University of Chicago ( email )

1155 East 60th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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