The underestimated virtues of the two-sector AK model
AbstractWe show that the two-sector version of the AK model proposed by Rebelo (1991) can be read as an endogenous growth extension of Greenwood, Hercowitz and Krusell (1997). By confining constant returns to capital to the investment goods sector, the model generates endogenously the secular downward trend of the relative price of equipment investment and the rising real investment rate observed in US NIPA data. Whereas Jones (1995) criticizes that the one-sector model fails to reconcile the empirical facts of trending real investment rates and stationary output growth, this incompatibility vanishes in the two-sector version. Finally, a simple technological shock can reproduce the ‘1974’ break in post World War II US data. Thus, AK-type endogenous growth models comply much better with empirical evidence, once they are augmented with a strictly concave consumption sector.
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Bibliographic InfoPaper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2003-15.
Date of creation: Dec 2003
Date of revision:
AK model; embodiment; endogenous growth; obsolescence; ‘1974’;
Other versions of this item:
- Felbermayr Gabriel J & Licandro Omar, 2005. "The Underestimated Virtues of the Two-sector AK Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-19, September.
- Gabriel J. FELBERMAYR & Omar LICANDRO, 2002. "The Under-Estimated Virtues of the Two-Sector AK Model," Economics Working Papers ECO2002/27, European University Institute.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-07 (All new papers)
- NEP-DEV-2004-03-07 (Development)
- NEP-DGE-2004-01-05 (Dynamic General Equilibrium)
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