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A Dynamic Model of Investment and Endogenous Growth

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  • King, Mervyn A
  • Robson, Mark H

Abstract

Models of endogenous growth assume that private investment in either physical or human capital yields positive externalities to production possibilities as a whole. But what is the structure of such externalities? We present a model of 'learning by watching'which implies a nonlinear relationship between productivity growth and the investment rate. This results in multiple steady-state growth rates in a deterministic setting, and in a rich dynamic structure that generates both growth and cycles in a stochastic model (calibrated by reference to observable shocks to tax rates in the United Kingdom). Economies with identical structures can experience very different growth rates for long periods. The model exhibits path-dependence and history matters. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • King, Mervyn A & Robson, Mark H, 1993. " A Dynamic Model of Investment and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 445-466, December.
  • Handle: RePEc:bla:scandj:v:95:y:1993:i:4:p:445-66
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    Cited by:

    1. Raimundo Soto, "undated". "El Tipo de Cambio Real de Equilibrio: Un modelo no lineal de Series de Tiempo," ILADES-Georgetown University Working Papers inv094, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    2. Qin, Duo & Cagas, Marie Anne & Quising, Pilipinas & He, Xin-Hua, 2006. "How much does investment drive economic growth in China?," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 751-774, October.
    3. Hollanders, Hugo & Weel, Bas ter, 1998. "Skill-Biased Technological Change in an Endogenous Growth Model," Research Memorandum 016, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    4. Shishir Saxena, 2011. "Technology and spillovers: evidence from Indian manufacturing microdata," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1271-1287.
    5. Raimundo Soto, "undated". "Nonlinearities in the Demand for money: A Neural Network Approach," ILADES-Georgetown University Working Papers inv107, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    6. Schneider, Johannes & Ziesemer, Thomas, 1994. "What's New and What's Old in New Growth Theory: Endogenous Technology, Microfoundation, and Growth Rate Predictions," MPRA Paper 56132, University Library of Munich, Germany.
    7. Hollanders, Hugo & Weel, Bas ter, 1999. "Skill-Biased Technical Change: On Endogenous Growth, Wage Inequality and Government Intervention," Research Memorandum 013, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    8. Keshab Bhattarai, 2007. "Input–Output and General Equilibrium Models for Hull and Humber Region in England," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(4), pages 473-490, December.
    9. A. Bassanini, 1997. "Localized Technological Change and Path-Dependent Growth," Working Papers ir97086, International Institute for Applied Systems Analysis.
    10. Mervyn Allister King, 1993. "Debt Deflation: Theory and Evidence," FMG Discussion Papers dp175, Financial Markets Group.

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