The dynamics of economic convergence: The role of alternative investment decisions

Jan Brůha (1) , Jiří Podpiera

1 The Center for Economic Research and Graduate Education of Charles University and the Economic Institute of the Academy of Sciences

In this paper we evaluate how various investment decisions explain the macroeconomic dynamics of European transition countries. We introduce quality investment decisions into a model with other two standard investment margins assumed in the advanced trade literature, i.e., investment in new varieties and in export eligibility. We show that the standard investment margins are not sufficient to simultaneously match the dynamics in the macroeconomic variables, especially the export performance and the real exchange rate. In contrast, the extended model with quality investment provides reconciliation.

Mots clés: F12; F36; F41; Two-country Modeling; Convergence; Real Exchange Rate

Domaines: Économie et finance quantitative [q-fin]

Jan Brůha, Jiří Podpiera. The dynamics of economic convergence: The role of alternative investment decisions. Journal of Economic Dynamics and Control, 2011, 35 (7), pp.1032. ⟨10.1016/j.jedc.2010.12.016⟩. ⟨hal-00822060⟩