Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth
AbstractThe "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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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 31 (2007)
Issue (Month): 3 (June)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Jakub Growiec, 2005. "Beyond the Linearity Critique: The Knife-Edge Assumption of Steady State Growth," GE, Growth, Math methods 0505003, EconWPA, revised 23 Jun 2005.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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