Basic stochastic dynamic systems of growth and trade

Bjarne S. Jensen*, Chunyan Wang

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Uncertainties are intrinsic features of dynamic economic systems, and this paper considers the dynamic implications of factor endowment (labor, capital) uncertainties for a small growing trading economy. The stochastic growth models presented extend the open neoclassical two-sector growth model (Deardorff) to a stochastic environment in continuous time, and extend the diffusion dynamics of one-sector growth models (Merton; Bourguignon) to a trading two-sector economy. It is demonstrated that the basic propositions of deterministic steady-state growth and endogenous growth theory, under some specifications and certain parametric restrictions, are preserved within a stochastic framework.

TidsskriftReview of International Economics
Udgave nummer3
Sider (fra-til)378-402
StatusUdgivet - 1999
Udgivet eksterntJa


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