Non‐Homothetic Multisector Growth Models

23 Pages Posted: 20 Apr 2015

See all articles by Bjarne S. Jensen

Bjarne S. Jensen

Copenhagen Business School

Ulla Lehmijoki

University of Helsinki - Department of Political and Economic Studies

Elena Rovenskaya

Moscow State University - Faculty of Computational Mathematics and Cybernetics

Date Written: May 2015

Abstract

Multisector growth (MSG) models are dynamic versions of computable general equilibrium (CGE) models. Non‐homothetic preference (utility) functions are required for the evolution of factor allocations and industrial structures in accordance with consumption expenditure patterns implied by the non‐unitary income elasticities observed in all budget data since Engel in the 1850s. But comparative static general equilibrium solutions and particularly solving the dynamics of MSG models require explicit specifications of all demand and cost (price) functions. On the demand side, the constant differences of elasticity of substitution (CDES) non‐homothetic indirect utility functions and Roy's identity provide the explicit Marshallian demand functions and budget shares. Sectorial constant elasticity of substitution (CES) cost functions and Shephard's lemma provide the explicit relative commodity price functions and the sectorial cost shares and capital–labor ratios. Walrasian equilibria are given by one equation and the multisector dynamics by three differential equations. Benchmark solutions are given for three cost regimes of a 10‐sector MSG model. History patterns of industrial/allocational evolutions are recognized.

Suggested Citation

Jensen, Bjarne S. and Lehmijoki, Ulla and Rovenskaya, Elena, Non‐Homothetic Multisector Growth Models (May 2015). Review of Development Economics, Vol. 19, Issue 2, pp. 221-243, 2015, Available at SSRN: https://ssrn.com/abstract=2595882 or http://dx.doi.org/10.1111/rode.12139

Bjarne S. Jensen (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
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Denmark
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+45-3815 2576 (Fax)

HOME PAGE: http://www.cbs.dk/staff/bjarneslothjensen/

Ulla Lehmijoki

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Elena Rovenskaya

Moscow State University - Faculty of Computational Mathematics and Cybernetics

119899 Moscow
Russia

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