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A Note On Economic Growth With Subsistence Consumption

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  • Strulik, Holger

Abstract

It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversially discussed issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent from the size of subsistence needs. The model is thus more general and less subject to arbitrariness than it might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.
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Suggested Citation

  • Strulik, Holger, 2010. "A Note On Economic Growth With Subsistence Consumption," Macroeconomic Dynamics, Cambridge University Press, vol. 14(05), pages 763-771, November.
  • Handle: RePEc:cup:macdyn:v:14:y:2010:i:05:p:763-771_99
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    References listed on IDEAS

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    1. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
    2. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    3. Dalgaard, Carl-Johan & Strulik, Holger, 2007. "A Bioeconomic Foundation of the Malthusian Equilibrium: Body Size and Population Size in the Long-Run," Hannover Economic Papers (HEP) dp-373, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Gary S. Becker & Casey B. Mulligan, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 729-758.
    5. Galor, Oded, 2005. "From Stagnation to Growth: Unified Growth Theory," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 4, pages 171-293 Elsevier.
    6. Sharif, Mohammed, 1986. "The Concept and measurement of subsistence: A survey of the literature," World Development, Elsevier, vol. 14(5), pages 555-577, May.
    7. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    8. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
    9. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
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    Citations

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    Cited by:

    1. Levaggi, Rosella & Menoncin, Francesco, 2013. "Optimal dynamic tax evasion," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2157-2167.
    2. Dalgaard, Carl-Johan & Strulik, Holger, 2013. "The history augmented Solow model," European Economic Review, Elsevier, vol. 63(C), pages 134-149.
    3. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
    4. Strulik, Holger, 2015. "Hyperbolic discounting and endogenous growth," Economics Letters, Elsevier, vol. 126(C), pages 131-134.
    5. Holger Strulik, 2014. "Knowledge And Growth In The Very Long Run," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 459-482, May.
    6. repec:kap:jeczfn:v:122:y:2017:i:2:d:10.1007_s00712-017-0556-2 is not listed on IDEAS
    7. Strulik, Holger, 2012. "Poverty, voracity, and growth," Journal of Development Economics, Elsevier, vol. 97(2), pages 396-403.
    8. Sharp, Paul & Strulik, Holger & Weisdorf, Jacob, 2012. "The determinants of income in a Malthusian equilibrium," Journal of Development Economics, Elsevier, vol. 97(1), pages 112-117.
    9. repec:kap:enreec:v:67:y:2017:i:1:d:10.1007_s10640-015-9976-z is not listed on IDEAS

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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