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Capital Utilization and the Foundations of Club Convergence

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Author Info
Carl-Johan Dalgaard (Institute of Economics, University of Copenhagen)
Jes Winther Hansen (Institute of Economics, University of Copenhagen)

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Abstract

Club 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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Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-14.

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Length: 7 pages
Date of creation: Nov 2004
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Handle: RePEc:kud:epruwp:04-14

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Related research
Keywords: economic growth; capital utilization; multiple eqilibria;

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Find related papers by JEL classification:
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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  1. Andros Kourtellos, 2002. "Modeling Parameter Heterogeneity in Cross Country Growth Regression Models," University of Cyprus Working Papers in Economics 0212, University of Cyprus Department of Economics. [Downloadable!]
  2. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July. [Downloadable!] (restricted)
    Other versions:
  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  4. Johnson, Paul A., 1994. "Capital utilization and investment when capital depreciates in use: some implications and tests," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 243-259. [Downloadable!] (restricted)
  5. Santanu Chatterjee, 2003. "Capital Utilization, Economic Growth and Convergence," Computing in Economics and Finance 2003 41, Society for Computational Economics. [Downloadable!]
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  6. Fabio Canova, 2004. "Testing for Convergence Clubs in Income Per Capita: A Predictive Density Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 49-77, 02. [Downloadable!] (restricted)
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  7. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Calvo, Guillermo A, 1975. "Efficient and Optimal Utilization of Capital Services," American Economic Review, American Economic Association, vol. 65(1), pages 181-86, March. [Downloadable!] (restricted)
  9. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier. [Downloadable!] (restricted)
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  10. Beatriz Rumbos & Leonardo Auernheimer, 2001. "Endogenous capital utilization in a neoclassical growth model," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(2), pages 121-134, June. [Downloadable!] (restricted)
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