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A Note on Economic Growth with Subsistence Consumption

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  • Strulik, Holger

Abstract

It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversially discussed issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent from the size of subsistence needs. The model is thus more general and less subject to arbitrariness than it might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-405.

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Length: 11 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:han:dpaper:dp-405

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Keywords: economic growth; saving; subsistence needs;

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References

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  1. Oded Galor, 2004. "From Stagnation to Growth: Unified Growth Theory," GE, Growth, Math methods 0409003, EconWPA.
  2. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
  3. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  4. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  5. Dalgaard, Carl-Johan & Strulik, Holger, 2007. "A Bioeconomic Foundation of the Malthusian Equilibrium: Body Size and Population Size in the Long-Run," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-373, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  7. Loayza, N. & Schmidt, K. & Serven, L., 1999. "What Drives Private Saving Across the World?," Papers 47, Cambridge - Risk, Information & Quantity Signals.
  8. Sharif, Mohammed, 1986. "The Concept and measurement of subsistence: A survey of the literature," World Development, Elsevier, vol. 14(5), pages 555-577, May.
  9. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
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Cited by:
  1. Sharp, Paul & Strulik, Holger & Weisdorf, Jacob, 2012. "The determinants of income in a Malthusian equilibrium," Journal of Development Economics, Elsevier, vol. 97(1), pages 112-117.
  2. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
  3. Strulik, Holger, 2009. "Knowledge and Growth in the Very Long-Run," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-414, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. Strulik, Holger, 2012. "Knowledge and growth in the very long run," Center for European, Governance and Economic Development Research Discussion Papers 145, University of Goettingen, Department of Economics.

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