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Application of Projection Method in a Model of Endogenous Growth

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  • Kejak, Michal

    (Center for Economic Research and Graduate Education - Economics Institute and Charles University and Academy of Science of the Czech Republic)

Abstract

The main goal of the paper is to show the application of the projection method as a tool for the analysis of transitional dynamics of endogenous growth models, the analysis which is very often omitted in common literature on the topic. The application of the method is demonstrated on an endogenous growth model with human capital accumulation and government sector. We analyze the long-run (steady states) and the short-run effects (transitional dynamics) of different fiscal policies. The transitional dynamics of the competitive equilibrium and the social optimum economies are compared. It is shown that when the economy starts with relatively abundant physical capital it is optimal to decrease its level very rapidly even at the cost of a big decline of consumption for a period of time. The introduction of education subsidies can bring the economy closer to the optimum and, therefore, improve the welfare of the society.

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File URL: http://www.ihs.ac.at/publications/eco/es-7.pdf
File Function: First version, 1995
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 7.

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Length: 24 pages
Date of creation: Apr 1995
Date of revision:
Handle: RePEc:ihs:ihsesp:7

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Cited by:
  1. Kejak, Michal, 2003. "Stages of growth in economic development," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(5), pages 771-800, March.

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