ABSTRACT

This chapter attempts to develop a simple model that integrates the several contrasting views of economic growth and fluctuations. It explores endogenous economic growth, while allowing for recurrent technological shocks that cause economic fluctuation and affect selection between two economic regimes: the deterministic and stochastic AK stages. The chapter focuses on negative role of subsidies in promoting economic growth and recovery. It presents a basic model of two-stage economic growth and describes the effects of subsidy policies on economic progress and regress. The chapter examines the effects of various subsidy policies in the context of economic regress as well as economic progress. This also departs from the endogenous growth literature, which focuses primarily on economic growth and has tended to ignore economic decline. Economic growth in the model is path-dependent, such that both convergence and divergence could co-exist among several countries in terms of growth rates and stages.