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On the sustainability of maximizing GDP Growth

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  • He, Yong

Abstract

Sparked by Baumol’s revenue- versus profit-maximizing models of the firm, this paper using a growth model shows that if a nation seeks GDP-maximizing growth with capital expansion as driving force, the model could work only under the assumption that the consumers’ aversion to under-consumption, an unavoidable consequence of over-investment, remains constant, and the effects of under-consumption are not accumulative. Otherwise, it has to decelerate growth and ultimately converges to the neoclassical growth model with consumption optimality. The empirical evidence on growth models of ex-Soviet Union, China and Eastern Asia are examined to explore the extent to which the model captures the real world.

Suggested Citation

  • He, Yong, 2018. "On the sustainability of maximizing GDP Growth," MPRA Paper 88549, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88549
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    References listed on IDEAS

    as
    1. Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Numerical Solution Methods," Springer Texts in Business and Economics, in: Economic Growth, edition 3, chapter 5, pages 213-278, Springer.
    2. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
    3. Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Economic Growth," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-662-63982-5, August.
    4. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    5. World Bank, 2014. "World Development Indicators 2014," World Bank Publications - Books, The World Bank Group, number 18237, December.
    6. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 233-240.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    GDP-maximizing growth; under-consumption effects; transition between steady states; sustainability; Chinese model.;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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