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Stochastic Growth Models and Their Econometric Implications

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Author Info
 Binder, Michael
Pesaran, M Hashem

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Abstract

This article considers the consequences of explicitly allowing for stochastic technological progress and stochastic labor input in the discrete-time Solow-Swan and AK growth models. It shows that the capital-output ratio, but not output per capita, is ergodic irrespective of whether there is a unit root in technology, and thus is the more appropriate measure to use in the cross-sectional analysis of the growth process. Furthermore, the article derives the cross-sectional and time-series implications of the stochastic Solow-Swan model and contrasts these to those of its deterministic counterpart. Among these implications are that the mean of the capital-output ratio depends in a precise way not only on the saving rate and the growth rate of labor input, but also on the variance and higher-order cumulants of the capital-output ratio. Using the Summers-Heston data for seventy-two countries from 1960 to 1992, strong support is found for the predictions of the stochastic Solow-Swan model as compared to those of its deterministic counterpart (as well as those of the AK model), including a significant negative cross-sectional relationship between the mean and the variance of the capital-output ratio. Copyright 1999 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 4 (1999)
Issue (Month): 2 (June)
Pages: 139-83
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Handle: RePEc:kap:jecgro:v:4:y:1999:i:2:p:139-83

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  4. Alessandro Girardi & Paolo Paesani, 2005. "Net Foreign Assets In The Euro Area: A Cointegration Analysis," Working Papers 76, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  5. Samir Makdisi,Zeki Fattah and Imed Limam, . "Determinants of Growth in the Mena Countries," API-Working Paper Series 0301, Arab Planning Institute - Kuwait, Information Center. [Downloadable!]
  6. Stachurski, J., 2001. "Stochastic Optimal Growth with Unbounded Shock," Department of Economics - Working Papers Series 777, The University of Melbourne. [Downloadable!]
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  10. Pesaran, M.H., 2004. "A Pair-wise Approach to Testing for Output and Growth Convergence," Cambridge Working Papers in Economics 0453, Faculty of Economics, University of Cambridge. [Downloadable!]
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  11. Chris Elbers & Jan Willem Gunning & Bill Kinsey, 2003. "Growth and Risk: Methodology and Micro Evidence," Tinbergen Institute Discussion Papers 03-068/2, Tinbergen Institute, revised 19 Sep 2006. [Downloadable!]
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  12. Milton Barossi-Filho & Ricardo Gonçalves Silva & Eliezer Martins Diniz, 2005. "The empirics of the Solow growth model: Long-term evidence," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 31-51, May. [Downloadable!]
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  14. Barnett, William A. & He, Susan, 2009. "Existence of Singularity Bifurcation in an Euler-Equations Model of the United States Economy: Grandmont was Right," MPRA Paper 12803, University Library of Munich, Germany. [Downloadable!]
  15. Stachurski, J., 2001. "Stochastic Growth: Asymptotic Distributions," Department of Economics - Working Papers Series 787, The University of Melbourne. [Downloadable!]
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