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Long-run implications of neoclassical growth models: empirical evidence from Australia, New Zealand, South Korea and Taiwan

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  • Ferdaus Hossain
  • Pin Chung

Abstract

Long-run implications of the one-factor neoclassical growth models are tested by using data from Australia, New Zealand, South Korea and Taiwan. Testable propositions about the long-run relations between log of real output, consumption, and investment are investigated using unit root tests and cointegration analysis. Also, common trends analysis is used to identify the sources of the permanent shocks driving the common long-run trend. Further, variance decomposition is used to examine the extent to which innovations to the common trend component are able to explain short-run fluctuations in the data. Empirical results provide limited support for the neoclassical models. In addition to productivity shocks, permanent innovations to investment are found to be important components of the long-run stochastic trend governing the dynamic behaviour of real output, consumption and investment. Variance decomposition results suggest that although innovations to common trend components are important, this is unable to explain a substantial fraction of short-run fluctuations in the data.

Suggested Citation

  • Ferdaus Hossain & Pin Chung, 1999. "Long-run implications of neoclassical growth models: empirical evidence from Australia, New Zealand, South Korea and Taiwan," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1073-1082.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:9:p:1073-1082
    DOI: 10.1080/000368499323553
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    Cited by:

    1. M.S.Rafiq, 2006. "Business Cycle Moderation - Good Policies or Good Luck: Evidence and Explanations for the Euro Area," Discussion Paper Series 2006_21, Department of Economics, Loughborough University.
    2. Arjun & Bibhuti Ranjan Mishra, 2024. "Testing the Balanced Growth Hypothesis in the Presence of Structural Breaks: Evidence from Developed and Developing Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2024(1), pages 1-35.
    3. Paresh Narayan & Russell Smyth, 2005. "Trade Liberalization and Economic Growth in Fiji. An Empirical Assessment Using the ARDL Approach," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 10(1), pages 96-115.
    4. Courvisanos, Jerry, 2000. "The Dynamics of Innovation and Investment, with application to Australia 1984 - 1998," Research Memorandum 003, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    5. Chang, Juin-Jen & Lin, Chang-Ching & Lin, Hsieh-Yu, 2016. "Great ratios and international openness," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 110-121.
    6. Diego Romero-Avila, 2008. "A confirmatory analysis of the unit root hypothesis for OECD consumption-income ratios," Applied Economics, Taylor & Francis Journals, vol. 40(17), pages 2271-2278.
    7. Yu-Lieh Huang & Chao-Hsi Huang, 2007. "The persistence of Taiwan's output fluctuations: an empirical study using innovation regime-switching model," Applied Economics, Taylor & Francis Journals, vol. 39(20), pages 2673-2679.
    8. Nelson C. Modeste, 2016. "Trade Liberalization and Economic Growth in Guyana: An Empirical Assessment using DOLS and Error Correcting Methodologies," The Review of Black Political Economy, Springer;National Economic Association, vol. 43(1), pages 57-67, March.
    9. Romero-Ávila, Diego, 2009. "Are OECD consumption-income ratios stationary after all?," Economic Modelling, Elsevier, vol. 26(1), pages 107-117, January.

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