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A Remark on the Form of Accumulation Functions in Economic Growth Models

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  • I.Hakan YETKINER

    () (Ýzmir University of Economics , Faculty of Economics and Administrative Sciences, Department of Economics)

Abstract

This study is a remark designed to underline the importance of using the right form of accumulation functions in economic growth models. After appearance of endogenous growth models in the growth literature, exclusion of a counter-force in the accumulation function, though required by the nature of the variable, is started to be made more frequently. This (mis-)behavior is due to now a common knowledge that a growth model must rely on non-diminishing returns to a factor of production in order to generate endogenous growth. This rule, however, can lead to the following potentially misleading assumption: diminishing marginal productivity to each factor of production-given that there is no other source of long run growth-is sufficient for generating (the true) steady state equilibrium (at levels). In this work, we heuristically argue that an accumulation function with no counter-moving force, though it is required by the nature of the variable, with or without diminishing returns, may bias the results of the model.

Suggested Citation

  • I.Hakan YETKINER, 2012. "A Remark on the Form of Accumulation Functions in Economic Growth Models," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 12(4), pages 467-473.
  • Handle: RePEc:ege:journl:v:12:y:2012:i:4:p:467-473
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    References listed on IDEAS

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    1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    Keywords

    Accumulation function; counter-moving force; steady state; differential equations; economic growth..;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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