Endogenous growth models: Jones vs Romer the path to a fully-fledged dynamic analysis

The last two decades were marked by a high increase in economic growth research, namely related to three important issues as stated in Klenow et al. [1997]: world growth, country growth and dispersion in income levels. The Charles Jones’ [2002] technique to solve endogenous growth models relies on the two-step approach, which is in fact a clever way to study the dynamic behaviour of the usual two production factors of this type of models, technology and capital. However, he does that sequentially, therefore reducing the general scope of the model, as it is a special case of a broader version developed by David Romer [2001]. Romer’s general case analyse the dynamic behaviour more closely and, more importantly, allowing for a simultaneous analysis of the dynamics of the endogenous factors, which provide additional insights. The aim of this paper is to tackle the differences between the two endogenous models as an exercise to see expost exogenous shocks’ implications to the variables of interest. More specifically, in addition to the strictly theoretical analysis of some dynamic properties of the model, by programming difference equations in discrete time, one is also able to simulate and examine how the model will respond to shocks that one administer to it, on an ad-hoc basis – deterministic simulation.