The Theories, Models And Empirical Researches Of Indeterminate Growth In The Open Economy

With the forthcoming of 21st century, global economic integration is becoming more and more implicit. However, the imbalance arising in the process of economic development has also been on a generally rising trend. Two economies with similarly initial endowments may undergo drastically different growth processes, for example South Korea and the Philippines. Many researches have also shown that the regional disparity in our country is rising. How to explain the regional imbalance of global economic development in the open economy and the dispersion of the output among different countries and regions becomes one of the main questions confronted by the macroeconomic study. In terms of the theory about the economic indeterminacy, the steady states are not the only one due to the endogenous complexity in the economic system. Different countries and regions maybe converge to various steady states in the process of growth and thus there are existing multiple balance growth paths, which is the global indeterminacy. Though there is only one steady state, it is not a "saddlepoint" equilibrium but is locally stable. Therefore there exists a continuum of growth paths that converge to the same steady state rather than the only one "gold lane". Different economies with similar fundamentals can choose divergent paths and differ so obviously in their short-run output level, i.e. the economic growth exhibits local indeterminacy.This dissertation first discusses in detail the concept of indeterminacy. It points out that the growth indeterminacy is the supplement and augmentation to the modern growth theory and strengthens its ability to explain actual economy. In this paper, I review the theoretical results about indeterminacy of economic growth from 1990s based on four standpoints such as externalities and returns-to-scale, preference structure, government policy, open economy. In the meantime problems and shortcomings existing in the previous researches are also provided.On the theory study this paper mainly aims at investigating the indeterminacy in the open economy. Of course in order to provide a comparison, the indeterminacy of the closed economy is analyzed beforehand. This dissertation shows that in a two-sector model with tradable goods and non-tradable goods, if the utility function is not additively separable between consumption and leisure, the growth indeterminacy can emerge for mild returns-to-scale and substitute elasticity of consumption differentfrom one. This property no more depends on the higher labor elasticity.Then a two-sector endogenous growth model with physical capital and human capital is proposed to explore the effect of international capital mobility on indeterminacy. Adopting the standard assumption for the small open economy this paper demonstrates that in the contrast to new human capital sector, if the final goods sector is physical capital intensive from the social perspective and human capital intensive from the private perspective, then local indeterminacy of economic growth will come into existence. Furthermore the dissertation investigates the resource allocation and price dynamics, and presents economic implication of the indeterminacy. Numerical simulations illustrate theoretical findings.In this paper international goods mobility is also introduced into an open economy Ramsey growth model examined by Weder(2001). It is supposed that agents not only consume domestic products, but also import foreign goods for consumption due to preference diversification. A sufficient condition is presented for the economy to exhibit indeterminacy. If there exists the mild sector-specific externality in the non-tradable goods sector and moreover the overall level of externalities in this sector is more than that of traded sector, then the economy may exhibit local indeterminacy. In comparison with Weder(2001), the dissertation illustrates that goods trade can greatly enhance the range in which indeterminacy results.Finally this paper formulates a two-sector endogenous growth model with fiscal policies in a small open economy, where the agent can freely allocate his labor time to produce final goods or accumulate human capital in the education sector. Government may collect taxes and allocate the constant rate of governmental revenues to subsidize the accumulation of human capital at every instant. Such a model can foresight the multi-equilibria (global indeterminacy) as well as local indeterminacy of economic growth. For a higher level of technology producing human capital, the economy could exhibit multiple steady states, one of which is unstable and the other relative to higher growth rate is locally stable state with a continuum of equilibrium paths.Based theoretical results derived above inspirations of growth indeterminacy to empirical study are overviewed. Further econometric analysis applying the series data from 1978 to 2002 in China illustrates that in the process of China's economic development there exists critical region of human capital to produce completely different relations between the development of human capital and economic growth around this level.Adopting the cross-section data of all provinces in our country this paperexamines the disparity of region economies. The empirical results indicate that the cross-regional per capita incomes for the whole sample including all provinces show little evidence of convergence, however in two sub-samples classified by initial human capital level follow the characterizes of convergence in the long-run. But we can see the fluctuation of per capita outputs in each sub-sample in the short-term and thus two regions with similarly initial endowments differ so drastically in their recent growth experience.Although the evidences are somewhat more tentative and many other explanations are possible, the hypothesis of indeterminacy cannot be excluded on the basis of the available evidences. The growth indeterminacy can offer a better explanation for the disparity of regional economy. Finally this dissertation proposes the relative suggestions on the economic open-up, the development of human capital and education investment in the middle and west area of ChinaBased on the regime of opened economy this dissertation explores the feasibility and evidences of growth indeterminacy from two perspectives of the theoretical and empirical studies. The findings will provide a brand-new perspective for understanding the dynamics of opened macro-economy and explaining the divergence of various countries' economic development, and possesses the theoretical value and policy inspiration in a certain degree.