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A Note On Economic Growth With Subsistence Consumption

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  • Strulik, Holger

Abstract

It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversially discussed issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent from the size of subsistence needs. The model is thus more general and less subject to arbitrariness than it might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 14 (2010)
Issue (Month): 05 (November)
Pages: 763-771

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Handle: RePEc:cup:macdyn:v:14:y:2010:i:05:p:763-771_99

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References

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  1. Galor, Oded, 2004. "From Stagnation to Growth: Unified Growth Theory," CEPR Discussion Papers 4581, C.E.P.R. Discussion Papers.
  2. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  3. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
  4. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series 2000-52, Board of Governors of the Federal Reserve System (U.S.).
  5. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  6. Kraay, Aart & Raddatz, Claudio, 2005. "Poverty traps, aid, and growth," Policy Research Working Paper Series 3631, The World Bank.
  7. Sharif, Mohammed, 1986. "The Concept and measurement of subsistence: A survey of the literature," World Development, Elsevier, vol. 14(5), pages 555-577, May.
  8. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  9. Dalgaard, Carl-Johan & Strulik, Holger, 2007. "A Bioeconomic Foundation of the Malthusian Equilibrium: Body Size and Population Size in the Long-Run," Hannover Economic Papers (HEP) dp-373, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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Citations

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Cited by:
  1. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
  2. Strulik, Holger, 2009. "Knowledge and Growth in the Very Long-Run," Hannover Economic Papers (HEP) dp-414, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Levaggi, Rosella & Menoncin, Francesco, 2013. "Optimal dynamic tax evasion," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2157-2167.
  4. Strulik, Holger, 2011. "Poverty, Voracity, and Growth," Hannover Economic Papers (HEP) dp-473, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Dalgaard, Carl-Johan & Strulik, Holger, 2013. "The history augmented Solow model," Center for European, Governance and Economic Development Research Discussion Papers 151, University of Goettingen, Department of Economics.
  6. Sharp, Paul & Strulik, Holger & Weisdorf, Jacob, 2012. "The determinants of income in a Malthusian equilibrium," Journal of Development Economics, Elsevier, vol. 97(1), pages 112-117.
  7. Strulik, Holger, 2013. "Hyperbolical discounting and endogenous growth," Center for European, Governance and Economic Development Research Discussion Papers 175, University of Goettingen, Department of Economics.

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