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A Remark on the Form of Accumulation Functions in Economic Growth Models

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  • I.Hakan YETKINER

    ()
    (Ýzmir University of Economics , Faculty of Economics and Administrative Sciences, Department of Economics)

Abstract

This study is a remark designed to underline the importance of using the right form of accumulation functions in economic growth models. After appearance of endogenous growth models in the growth literature, exclusion of a counter-force in the accumulation function, though required by the nature of the variable, is started to be made more frequently. This (mis-)behavior is due to now a common knowledge that a growth model must rely on non-diminishing returns to a factor of production in order to generate endogenous growth. This rule, however, can lead to the following potentially misleading assumption: diminishing marginal productivity to each factor of production-given that there is no other source of long run growth-is sufficient for generating (the true) steady state equilibrium (at levels). In this work, we heuristically argue that an accumulation function with no counter-moving force, though it is required by the nature of the variable, with or without diminishing returns, may bias the results of the model.

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Bibliographic Info

Article provided by Ege University Faculty of Economics and Administrative Sciences in its journal Ege Academic Review.

Volume (Year): 12 (2012)
Issue (Month): 4 ()
Pages: 467-473

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Handle: RePEc:ege:journl:v:12:y:2012:i:4:p:467-473

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Web page: http://iibf.ege.edu.tr/ENG/
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Keywords: Accumulation function; counter-moving force; steady state; differential equations; economic growth..;

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