Essays in Honor of Lance Taylor
Edited by Amitava Krishna Dutt
P. Ruben Mercado, Lihui Lin and David A. Kendrick The theoretical and computational modeling of economic growth has experienced a signiﬁcant comeback in recent years, particularly in the form of optimal growth models. Qualitative properties of simple one-sector models of optimal growth have been known for a long time, and closed form solutions can be obtained for particular models with simple objective functions and dynamic constraints. However, computational methods become a necessity as soon as we move from simple models to more complex speciﬁcations.1 These methods are very useful not only to obtain solutions and simulations of empirically speciﬁed models, but also to explore the behavior of complex theoretical models.2 Our goal in this chapter is to introduce some strategies to implement optimal growth models in GAMS (General Algebraic Modeling System).3 We begin with a simple Ramsey-type model and later present a more complex dynamic multisector model originally developed by David Kendrick and Lance Taylor (Kendrick and Taylor, 1969 and 1970). The last one is particularly interesting since it is a four-sector model with a nonlinear objective function, non-linear constant elasticity of substitution (CES) production functions, and non-linear absorptive capacity functions. It was an early eﬀort to show the feasibility of solving multisector nonlinear optimization models with the use of computational methods. At that time, its solution required the most powerful computers available at MIT. Today, it can easily be implemented in a personal computer and it provides, among other things, a good training ground...
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