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U-shaped Paths of Consumption and Physical Capital in Lucas-type Growth Models

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  • Farhad Nili

    (Keele University, UK)

Abstract

This paper considers transitional dynamics of consumption and physical capital in Lucas-type growth models. We find that when the ratio of physical to human capital is sufficiently high, it is optimal for both consumption and physical capital to fall for a finite period and then rise along their transition paths. Endogenous growth models may therefore not be able to generate a sustainable path of development when the steady state coexists with the transitional dynamics. According to the extent of consumption smoothing, we characterize the stages of transition in three different growth regimes. Particularly in the normal and paradoxical cases, dynamics of the Lucas model is contrasted with that of Ramsey.

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File URL: http://128.118.178.162/eps/dev/papers/0211/0211002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0211002.

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Length: 30 pages
Date of creation: 05 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpdc:0211002

Note: Type of Document - pdf; prepared on pc; pages: 30
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Web page: http://128.118.178.162

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Keywords: Lucas growth model; transitional dynamics; physical to human capital ratio; sustainability;

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  1. Mulligan, Casey B & Sala-i-Martin, Xavier, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 739-73, August.
  2. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper 9324, Federal Reserve Bank of Dallas.
  3. Salvador Ortigueira, 1996. "Fiscal Policy in an Endogenous Growth Model with Human Capital Accumulation," Working Papers 9609, Centro de Investigacion Economica, ITAM.
  4. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
  5. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two sector model of endogenous growth with human and physical capital," Research Paper 9303, Federal Reserve Bank of Dallas.
  6. Lutz G. Arnold, 2000. "Endogenous technological change: a note on stability," Economic Theory, Springer, vol. 16(1), pages 219-226.
  7. Hanley, Nick, 2000. " Macroeconomic Measures of 'Sustainability.'," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 1-30, February.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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