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Adjustment Costs and Endless Capital Growth

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  • M. Menegatti

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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.

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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2001-EP03.

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Date of creation: 2001
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Publication status: Published in RISEC:International Review of Economics and Business, June 2003, v. 50, iss. 2, pp. 211-20
Handle: RePEc:par:dipeco:2001-ep03

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