Global Business Cycles in a Neoclassical Growth Model with Spirits of Capitalism

Year 2019, Volume: 4 Issue: 1, 13 - 33, 30.06.2019

Wei-bin Zhang

https://doi.org/10.25229/beta.420730

Abstract

The purpose of the paper is to identify business cycles due to exogenous shocks in a global economic growth model with endogenous social status, endogenous preferences, and wealth accumulation. The basic model by Zhang (2017) is built on the basis of the Solow model, the Uzawa two-sector model, the Oniki-Uzawa trade model, and some ideas in the literature of economic growth with endogenous growth. The paper introduces various time-dependent exogenous shocks to Zhang’s model. We show the existence of business cycles with different exogenous periodic shocks. Our comparative dynamic analysis shows, for instance, how exogenous changes in the propensities lead to global business cycles and oscillations in global income and wealth distribution. The unique contribution is to identify real business cycles in the neoclassical growth model with endogenous preference built on microeconomic foundation.

Keywords

Business Cycles, Exogenous Periodic Shocks, Social Status, Spirit of Capitalism, Global Income Inequality

References

• Chang, W.-Y. (2006) ‘Relative Wealth, Consumption Taxation, and Economic Growth. Journal of Economics 88, 103–29.
• Clemens, C. (2004) Status, Risk-Taking and Intertemporal Substitution in an Endogenous Growth Model. Journal of Economics 2, 103–23.
• Cole, H.L., Mailath, G.J., and Postlewaite, A. (1992) Social Norms, Savings Behavior, and Growth. Journal of Political Economy 100, 1092-25.
• Corneo, G. and O. Jeanne (2001) On Relative Wealth Effects and Long-run Growth. Research in Economics 55, 349–58.
• Duesenberry, J. (1949) Income, Saving and the Theory of Consumer Behavior. Cambridge: Harvard University Press.
• Fershtman, C., Murphy, K.M., Weiss, Y. (1996) Social Status, Education and Growth. Journal of Political Economy 106, 108-32.
• Fisher, W. H. and Hof, F. X. (2005) Status Seeking in the Small Open Economy. Journal of Macroeconomics 27, 209–32.
• Ikeda, S. and Ono, Y. (1992) Macroeconomic Dynamics in a Multi-Country Economy - A Dynamic Optimization Approach. International Economic Review 33, 629-644.
• Konrad, K. (1992) Wealth Seeking Reconsidered. Journal of Economic Behavior and Organization 18, 215–227.
• Kurz, M. (1968) Optimal Economic Growth and Wealth Effects. International Economic Review 9, 348-57.
• Oniki, H. and Uzawa, H. (1965) Patterns of Trade and Investment in a Dynamic Model of International Trade. Review of Economic Studies 32, 15-38.
• Rauscher, M., 1997. Conspicuous Consumption, Economic Growth, and Taxation. Journal of Economics 66, 35–42.
• Rege, M. (2008) Why Do People Care about Social Status? Journal of Economic Behavior & Organization 66, 233–42.
• Solow, R. (1956) A Contribution to the Theory of Growth. Quarterly Journal of Economics 70, 65-94.
• Uzawa, H. (1961) On a Two-Sector Model of Economic Growth. Review of Economic Studies 29, 47-70.
• Veblen, T. (1899) The Theory of the Leisure Class. New York: Modern Library.
• Zhang, W.B. (2017) Global Social Status, National Spirits of Capitalism, and Economic Development. Economics 21 2017(2), 53-75.