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Long-Term Growth and Persistence with Endogenous Depreciation: Theory and Evidence

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  • Barañano Mentxaka, Ilaski
  • Romero-Avila, Diego

Abstract

Previous research has shown a strong positive correlation between short-term persistence and long-term output growth as well as between depreciation rates and long-term output growth. This evidence, therefore, contradicts the standard predictions from traditional neoclassical or AK-type growth models with exogenous depreciation. In this paper, we first confirm these findings for a larger sample of 101 countries. We then study the dynamics of growth and persistence in a model where both the depreciation rate and growth are endogenous and procyclical. We find that the model s predictions become consistent with the empirical evidence on persistence, long-term growth and depreciation rates.

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Paper provided by Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I in its series IKERLANAK with number Ikerlanak;2013-68.

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Date of creation: 2013
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Handle: RePEc:ehu:ikerla:9547

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Postal: Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: real business cycle models; endogenous growth; stochastic trends; persistence; capital utilization; dynamic panel data models;

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