IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Growth outside the stable path: Lessons from the European reconstruction

  • Alvarez-Cuadrado, Francisco

This paper exploits a natural experiment, the large destruction of capital in continental Europe during World War II, to characterize the transitional dynamics of an economy that begins with a capital stock below its steady state level. We use these regularities as a benchmark to discriminate among competing growth specifications. A model that combines non-separabilities in preferences with a technology that restricts the degree of substitutability between inputs outperforms the widely used AK and Cobb-Douglas specifications with time-separable preferences. Our results suggest that policy evaluations based in growth models that overlook non-separabilities in preferences or impose strong restrictions on the technological structure might be grossly misleading.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(07)00018-9
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 3 (April)
Pages: 568-588

as
in new window

Handle: RePEc:eee:eecrev:v:52:y:2008:i:3:p:568-588
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, 03.
  2. Christopher D Carroll & Jody Overland & David N Weil, 1997. "Comparison Utility in a Growth Model," Economics Working Paper Archive 387, The Johns Hopkins University,Department of Economics.
  3. Lawrence J. Christiano, 1989. "Understanding Japan's saving rate: the reconstruction hypothesis," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 10-25.
  4. Antras, Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," Scholarly Articles 3196325, Harvard University Department of Economics.
  5. Papageorgiou, Chris & Perez-Sebastian, Fidel, 2006. "Dynamics in a non-scale R&D growth model with human capital: Explaining the Japanese and South Korean development experiences," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 901-930, June.
  6. King, R.G. & Rebelo, S.T., 1989. "Transitional Dynamics And Economic Growth In The Neoclassical Model," RCER Working Papers 206, University of Rochester - Center for Economic Research (RCER).
  7. Stephen Turnovsky & Santanu Chatterjee, 2002. "To Spend the US Government Surplus or to Increase the Deficit? A Numerical Analysis of the Policy Options," Working Papers UWEC-2002-19-P, University of Washington, Department of Economics.
  8. Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October.
  9. Pierre-Olivier Gourinchas & Olivier D Jeanne, 2004. "The Elusive Gains from International Financial Integration," IMF Working Papers 04/74, International Monetary Fund.
  10. Ben-David, D. & Lumsdaine, L.R. & Papell, D.H., 1996. "Unit Roots Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks," Papers 33-96, Tel Aviv.
  11. Francisco Alvarez-Cuadrado, . "A Quantitative Exploration of the Golden Age of European Growth: Structural Change, Public Investment, the Marshall Plan and Intra-European Trade," Working Papers UWEC-2004-15, University of Washington, Department of Economics.
  12. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  13. Berndt, Ernst R, 1976. "Reconciling Alternative Estimates of the Elasticity of Substitution," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 59-68, February.
  14. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  15. Ireland, Peter N., 1994. "Supply-side economics and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 559-571, June.
  16. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  17. Maddison, A., 1991. "A Long Run Perspective on Saving," Papers 443, Groningen State, Institute of Economic Research-.
  18. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  19. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  20. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
  21. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  22. Simon Gilchrist & John C. Williams, 2001. "Transition Dynamics in Vintage Capital Models: Explaining the Postwar Catch-up of Germany and Japan," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-113, Boston University - Department of Economics.
  23. Kent Smetters, 2003. "The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 697-707, July.
  24. Manuel S. Santos, 2000. "Accuracy of Numerical Solutions using the Euler Equation Residuals," Econometrica, Econometric Society, vol. 68(6), pages 1377-1402, November.
  25. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  26. Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
  27. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  28. Morten Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Deep Habits," NBER Working Papers 10261, National Bureau of Economic Research, Inc.
  29. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "The Poverty of Nations: A Quantitative Exploration," NBER Working Papers 5414, National Bureau of Economic Research, Inc.
  30. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  31. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  32. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
  33. Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
  34. Christopher D. Carroll, 2000. "'Risky Habits' and the Marginal Propensity to Consume Out of Permanent Income, or, How Much Would a Permanent Tax Cut Boost Japanese Consumption?," NBER Working Papers 7839, National Bureau of Economic Research, Inc.
  35. Maddison, Angus, 1994. "Standardised Estimates of Fixed Capital Stock: A Six Country Comparison," GGDC Research Memorandum 199409, Groningen Growth and Development Centre, University of Groningen.
  36. repec:dgr:rugggd:199409 is not listed on IDEAS
  37. King, Robert G. & Levine, Ross, 1994. "Capital fundamentalism, economic development, and economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 259-292, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:52:y:2008:i:3:p:568-588. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.