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A Convex Model of Equilibrium Growth

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  • Larry E. Jones
  • Rodolfo Manuelli

Abstract

Our aim in this paper is to exposit a convex model of equilibrium growth. The model is strictly in the Solow tradition. The model has two features which distinguish it from most other work on the subject. These are, first, that the model is convex on the technological side and, eecond, that fixed fatten are explicitly included. The difference between our model and the standard single sector growth model lies in the fact that the marginal product of capital does not converge to zero as the level of inputs go to infinity. Existence and characterization results are provided along with some preliminary analyses of taxation and international trade policies. It is shown that the long-run growth rate in per capita consumption depends, in the natural way, on the parameters describing tastes and technology. Finally, it is shown that some policies have growth effects while others affect only levels. It is demonstrated that in a free trade equilibrium with taxation national growth rates of consumption and output need not converge.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3241.

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Date of creation: Jan 1990
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Publication status: published as Journal of Political Economy Volume 98, Part 1, No. 5, October 1990, pp. 1008-1038
Handle: RePEc:nbr:nberwo:3241

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  1. Kenneth L. Judd, 1983. "Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Discussion Papers 559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  3. Nancy L Stokey, 1986. "Learning-by-Doing and the Introduction of New Goods," Discussion Papers 699, Northwestern University, Center for Mathematical Studies in Economics and Management Science, revised May 1987.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Becker, Robert A, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 375-82, September.
  6. Schmitz, James A, Jr, 1989. "Imitation, Entrepreneurship, and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 721-39, June.
  7. Brock, William A. & Gale, David, 1969. "Optimal growth under factor augmenting progress," Journal of Economic Theory, Elsevier, vol. 1(3), pages 229-243, October.
  8. Prescott, Edward C & Mehra, Rajnish, 1980. "Recursive Competitive Equilibrium: The Case of Homogeneous Households," Econometrica, Econometric Society, vol. 48(6), pages 1365-79, September.
  9. Rajnish Mehra, 2006. "Recursive Competitive Equilibrium," NBER Working Papers 12433, National Bureau of Economic Research, Inc.
  10. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
  11. Alexandre Scheinkman, Jose, 1976. "On optimal steady states of n-sector growth models when utility is discounted," Journal of Economic Theory, Elsevier, vol. 12(1), pages 11-30, February.
  12. Becker, Robert A., 1985. "Capital income taxation and perfect foresight," Journal of Public Economics, Elsevier, vol. 26(2), pages 147-167, March.
  13. 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.
  14. Karl Shell, 2010. "A Model of Inventive Activity and Capital Accumulation," Levine's Working Paper Archive 1409, David K. Levine.
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