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Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth

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  • Jakub Growiec

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Abstract

The "linearity critique" of endogenous growth models is presented in a general context of an arbitrary growth model and reassessed. It is argued, that presence of linearities is not a valid criterion for rejecting growth models. Existence of exponential/geometrical steady- state growth (i.e. of a balanced growth path with strictly positive growth rates) necessarily requires some knife-edge condition, which is not satisfied by typical parameter values. Hence, balanced growth paths are fragile and sensitive to smallest disturbances in parameter values. Adding higher order differential/difference equations to a model does not change the knife-edge character of steady-state growth.

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File URL: http://hdl.handle.net/10.1007/s00199-006-0107-5
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 31 (2007)
Issue (Month): 3 (June)
Pages: 489-499

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Handle: RePEc:spr:joecth:v:31:y:2007:i:3:p:489-499

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Related research

Keywords: Long-run economic growth; Knife-edge condition; Balanced growth path; Linearity critique; C62; O40; O41;

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References

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  1. Jones Charles I., 2001. "Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-45, August.
  2. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  3. Jonathan Temple, 2003. "The Long-Run implications of Growth Theories," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 497-510, 07.
  4. Charles I. Jones, 2004. "Growth and Ideas," NBER Working Papers 10767, National Bureau of Economic Research, Inc.
  5. Connolly, Michelle & Peretto, Pietro F, 2003. " Industry and the Family: Two Engines of Growth," Journal of Economic Growth, Springer, vol. 8(1), pages 115-48, March.
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Cited by:
  1. Christian Groth & Karl-Josef Koch & Thomas M. Steger, . "When Economic Growth is Less than Exponential," EPRU Working Paper Series 2009-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised May 2009.
  2. Jakub Growiec, 2011. "A microfoundation for normalized CES production functions with factor-augmenting technical change," National Bank of Poland Working Papers 98, National Bank of Poland, Economic Institute.
  3. Growiec, Jakub, 2010. "Knife-edge conditions in the modeling of long-run growth regularities," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1143-1154, December.
  4. Attar, Mustafa A., 2008. "Science in the Third Dimension of R&D," MPRA Paper 9427, University Library of Munich, Germany.
  5. Tobias Kronenberg, 2010. "Energy conservation, unemployment and the direction of technical change," Portuguese Economic Journal, Springer, vol. 9(1), pages 1-17, April.
  6. Daniel Cardona & Fernando Sanchez Losada, 2007. "Cost-Based Models of Economic Growth," Working Papers in Economics 179, Universitat de Barcelona. Espai de Recerca en Economia.
  7. Christiaans, Thomas, 2008. "International trade and industrialization in a non-scale model of economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 221-236, September.

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