The dynamic effects of government spending are considered in a general equilibrium model with monopolistic competition and increasing returns. In the economy, changes in the level of government spending endogenously raise total factor productivity, even though the spending itself is entirely...

Cyclical movements in aggregate output, factor inputs, and productivity are all positively correlated across countries. This article proposes a model in which positive cross-country correlations of these variables result from increasing returns to the world-wide variety of intermediate goods...