A Dynamic CGE Model: An Application of R&D-Based Endogeneous Growth Model Theory

An R&D based endogeneous growth - applied general equilibrium model is developed from an underlying analytical model which combines Romer's capital variety with Grossman and Helpman's multi-sector open economy model. The transitional dynamics of the analytical model are derived. For numerical implementation, a time discrete empirical model, with an Armington structure, is fit to East Asian data of the social accounting matrix variety. Simulations of trade reform are performed and their static and dynamic effects compared. A solution of the Social Planner's problem, and interventions which seek to obtain this outcome from the decentralized model are also obtained.