Capital Utilization and the Foundations of Club Convergence
AbstractClub convergence may arise as an empirical prediction from standard neoclassical growth models where the aggregate production technology displays diminishing returns to capital. This requires that the propensity to save from wage income is greater than the propensity to save from capital income. This paper shows how endogenous capital utilization may produce such savings behavior in an otherwise standard Solow model. That is, even if households save a constant fraction of total income multiple stable steady states may arise when capital utilization is endogenously determined.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-14.
Length: 7 pages
Date of creation: Nov 2004
Date of revision:
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economic growth; capital utilization; multiple eqilibria;
Other versions of this item:
- Dalgaard, Carl-Johan & Winther Hansen, Jes, 2005. "Capital utilization and the foundations of club convergence," Economics Letters, Elsevier, vol. 87(2), pages 145-152, May.
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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