A model of optimal growth strategy

In this paper we present an optimal growth model with convex-concave technology for an open developing country. The latter may choose to produce consumption goods by borrowing on capital markets or to import consumption goods by investing its saving on capital markets. We prove there exist two nontrivial steady states. An optimal path converges either to 0 or to the high steady state, that depends on the levels of the initial debt and/or of the debt constraint. We also prove there exists a poverty trap if the time preference is very high. (C) 1999 Academic Press.