Leapfrogging, Growth Reversals And Welfare

The authors show that leapfrogging and growth reversals entail sizeable welfare gains and losses, respectively, in an AK economy that cannot credibly commit to investment when borrowing from international financial markets. Small no-commitment delays originate a trade-off that has an ambiguous effect on welfare: they reduce the long-run consumption growth rate but increase the initial level of consumption that is optimally chosen. Essentially, the larger the delay, the tighter the borrowing constraint and the weaker the incentives to accumulate capital, so that smaller growth and larger initial consumption follow.

Provided by: Centre pour la Communication Scientifique Directe Topic: Big Data Date Added: Mar 2011 Format: PDF

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