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On The Dynamic Efficiency Of Balanced Growth Paths In An Endogenous Growth Setting

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  • Del Rey, Elena
  • Lopez-Garcia, Miguel-Angel

Abstract

In overlapping-generations economies with life-cycle saving and exogenous growth, the laissez-faire equilibrium balanced growth path fails in general to achieve optimality, but is dynamically efficient if the marginal product of physical capital is greater than the growth rate of the economy. In this paper, we accommodate the concept of dynamic (in)efficiency in an overlapping-generations economy with endogenous growth due to human capital accumulation. We show that the condition that the marginal product of physical capital is larger than the growth rate of the economy is necessary but no longer sufficient for the dynamic efficiency of the laissez-faire equilibrium balanced growth path.

Suggested Citation

  • Del Rey, Elena & Lopez-Garcia, Miguel-Angel, 2017. "On The Dynamic Efficiency Of Balanced Growth Paths In An Endogenous Growth Setting," Macroeconomic Dynamics, Cambridge University Press, vol. 21(8), pages 1837-1856, December.
    • Handle: RePEc:cup:macdyn:v:21:y:2017:i:08:p:1837-1856_00
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    Cited by:

    1. Michael Hatcher & Panayiotis M. Pourpourides, 2023. "Does the impact of private education on growth differ at different levels of credit market development?," Review of Development Economics, Wiley Blackwell, vol. 27(1), pages 291-322, February.
    2. Kamiguchi, Akira & Tamai, Toshiki, 2023. "Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency," Journal of Macroeconomics, Elsevier, vol. 77(C).

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