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How Much Should a Nation Save? A New Answer

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  • de La Grandville Olivier

    (Stanford University)

Abstract

We introduce a formula for the optimal savings rate in an economy driven by an investment policy reflecting competitive equilibrium. The reasonable numbers generated by the formula should be of help not only to assess our present situation, but also to prepare our future. Moreover, this paper provides two theorems correcting a widely spread error in economic growth theory, namely that a steady state can be asymptotically reached only if technical progress is labor-augmenting. We finally show that the magnitudes of the optimal savings rates are highly robust to very different, S-shaped evolutions of population and technology. The paper closes with a daring conjecture.

Suggested Citation

  • de La Grandville Olivier, 2012. "How Much Should a Nation Save? A New Answer," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(2), pages 1-36, April.
    • Handle: RePEc:bpj:sndecm:v:16:y:2012:i:2:n:1
    DOI: 10.1515/1558-3708.1908
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    References listed on IDEAS

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    1. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-481, June.
    2. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
    3. Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-346, May.
    4. Dorfman, Robert, 1969. "An Economic Interpretation of Optimal Control Theory," American Economic Review, American Economic Association, vol. 59(5), pages 817-831, December.
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    Cited by:

    1. Bernardo Maggi, 2014. "ICT Stochastic Externalities and Growth: Missed Opportunities, Beyond Sustainability or What?," DSS Empirical Economics and Econometrics Working Papers Series 2014/4, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
    2. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.
    3. Christopoulos, Dimitris K. & McAdam, Peter, 2019. "Efficiency, Inefficiency, And The Mena Frontier," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 489-521, March.
    4. Jakub Growiec & Peter McAdam & Jakub Mućk, 2021. "On the Optimal Labor Income Share," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-52, October.
    5. Paul Levine & Peter McAdam & Peter Welz, 2013. "On Habit and the Socially Efficient Level of Consumption and Work Effort," School of Economics Discussion Papers 0713, School of Economics, University of Surrey.
    6. La Grandville, O. de, 2014. "Optimal growth theory: Challenging problems and suggested answers," Economic Modelling, Elsevier, vol. 36(C), pages 608-611.

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