Dynamic Analysis of a 'Solow-Romer' Model of Endogenous Growth
AbstractThe model of endogenous economic growth developed by Paul Romer (1990a) is briefly reviewed and modified by substituting a Solow type consumption function in place of the utility maximising behaviour of consumers. The dynamic system and steady-state growth path of this Solow-Romer model are then derived. Such modification allows the dynamics of the model, in response to certain economic shocks, to be examined in terms of phase diagrams; and illustrates the instructional power of this approach. The impacts of the same economic shocks are also analysed more directly by numerical integration of the differential equations and boundary conditions describing the dynamic system of the model. Adjustment processes are found to be relatively lengthy; and to be characterised by significant initial jumps or discontinuities in certain variables. Furthermore, in some cases these initial jumps can be in the opposite direction to that of the subsequent adjustment. Such results emphasise the importance of explicit analysis of the dynamics of the adjustment paths of growth models and their relevance for economic policy.
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Bibliographic InfoPaper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number ip-68.
Date of creation: Aug 1997
Date of revision:
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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