A Simple Dynamic Model of Big-push

In 1943, Paul Rosenstein-Rodan first coined the term “big-push†in his paper about growth in Eastern European economies. In 1989, Murphy et al. characterised the big-push as a static multi-equilibrium aggregate demand spillover model. Based on the model with a factory wage premium by Murphy et al. (1989), I have developed a simple multi-period dynamic model of big-push with a dynamic state variable powered by the aggregate spillover demand, where the economic growth is driven by two key parameters: wage premium and productivity. Armed with this economic growth model, I explore the dynamic behaviour and establish the economic characteristics of disequilibrium growth, which are common observable economic phenomena in the emerging economies. This model provides a simple but cogent economic structure, which may be used to explain and study economic phenomena such as the stagnation of the Japanese economy in 1990s and financial crises. In addition, this model offers plausible explanations for the empirical deviations of the Kuznets Curve and the Okun’s Law as identified in the recent literature. The significant implication of this model for the Okun’s Law and the Kuznets Curve in particular, and on economic theories in general, is that the economic relationships may not be static but dynamic and contingent on the state of an economy, which is determined by the ratio of wage premium on productivity and the industrialization statebig-push, economic development, industrialization, financial crisis