Non-optimality of the Myopic Decision Rule: The Case of a Two-Sector Open Economy

Tapan Biswas

Abstract


This paper is concerned with optimal allocation of investment in a two-sector open economy with non-shiftable capital. We have assumed a stationary population and fixed terms of trade. It has been shown that, if the economy starts with a small amount of capital in each sector, the myopic decision rule under static expectations will not be compatible with the conditions of optimal investment allocation

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