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Adjustment Costs and Endless Capital Growth

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  • M. Menegatti

Abstract

This work examines the effects on investment theory of introducing learning by doing externalities in adjustment costs. The analysis shows that the long run equilibrium of the economy, which was represented in the traditional formulation by a steady state, becomes, in this new framework, a balanced growth path where capital and investment grow at the same constant rate. It is shown that this result is due to the fact that, while in the traditional model the marginal opportunity cost of capital replacement is increasing in the capital stock, in this new context it is constant.

Suggested Citation

  • M. Menegatti, 2001. "Adjustment Costs and Endless Capital Growth," Economics Department Working Papers 2001-EP03, Department of Economics, Parma University (Italy).
  • Handle: RePEc:par:dipeco:2001-ep03
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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