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Endogenous Growth and the role of History

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Mervyn A. King
Mark Robson

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Abstract

This paper presents a model in which the realizations of stochastic tax and depreciation rates determine both the level and growth rate of output: externalities to investment - learning by watching - are characterized by diminishing returns, yielding a nonlinear "technical progress function". This results in multiple steady-state growth rates. History matters. It is possible that two economies with identical "deep" parameters and initial capital stocks may cycle around different trend growth rates, depending upon the historical path of fiscal shocks. Growth and cycles interact, and the nonlinearity means that output changes cannot be decomposed into a stochastic trend and a trend-stationary process.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3151.

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Date of creation: Oct 1989
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Handle: RePEc:nbr:nberwo:3151

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  2. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September. [Downloadable!] (restricted)
  3. Danthine, Jean-Pierre & Donaldson, John B, 1981. "Stochastic Properties of Fast vs. Slow Growing Economies," Econometrica, Econometric Society, vol. 49(4), pages 1007-33, June. [Downloadable!] (restricted)
  4. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June. [Downloadable!] (restricted)
  5. Paul Romer, 1991. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Canning, David J, 1988. "Increasing Returns in Industry and the Role of Agriculture in Growth," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 463-76, September. [Downloadable!] (restricted)
  7. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September. [Downloadable!] (restricted)
  8. Kaldor, Nicholas, 1975. "What Is Wrong with Economic Theory," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 347-57, August. [Downloadable!] (restricted)
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  1. Heger, Diana, 2004. "The Link Between Firms? Innovation Decision and the Business Cycle : An Empirical Analysis," ZEW Discussion Papers 04-85, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Eric M. Engen & Jonathan Skinner, 1992. "Fiscal Policy and Economic Growth," NBER Working Papers 4223, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Faini, Riccardo & de Melo, Jaime, 1991. "Fiscal issues in adjustment : an introduction," Policy Research Working Paper Series 724, The World Bank. [Downloadable!]
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