On the Consequences of Generically Distributed Investments on Flexible Projects in an Endogenous Growth Model

In this paper we argue that differences in the investment projects’ features can help to explain the observed differentials in output growth and in output volatility across countries. This result is achieved by studying analytically an endogenous growth model where investments are (generically) distributed over multi-period flexible projects leading to new capital once completed. Recently developed techniques in dynamic programming are adapted and used to fully characterized the balanced growth path and transitional dynamics of this model. Based on this analytical ground, several numerical exercises are performed to show how the key results of our analysis are also quantitatively relevant.