IDEAS home Printed from https://ideas.repec.org/a/fip/fedmqr/y1998ifallp13-27nv.22no.4.html
   My bibliography  Save this article

A defense of AK growth models

Author

Listed:
  • Ellen R. McGrattan

Abstract

AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country?s GDP growth. Charles Jones (1995) sees no evidence for this prediction in data for 15 OECD countries after World War II: rates of investment, especially for equipment, have risen while GDP growth rates have not. This article provides evidence supporting the AK models? prediction. Data back to the 19th century show a strong positive relationship between investment rates and growth rates and short-lived deviations from trends. A strong positive relationship also exists between average rates of investment and growth in postwar data for a large cross-section of countries. To account for the short-run deviations in rates that Jones highlights, the model he used is extended to allow policies to affect not only investment/output ratios but also capital/output ratios and labor/leisure decisions.

Suggested Citation

  • Ellen R. McGrattan, 1998. "A defense of AK growth models," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 22(Fall), pages 13-27.
    • Handle: RePEc:fip:fedmqr:y:1998:i:fall:p:13-27:n:v.22no.4
    as

    Download full text from publisher

    File URL: http://minneapolisfed.org/research/qr/qr2242.pdf
    Download Restriction: no
    File URL: http://minneapolisfed.org/research/qr/qr2242.html
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-550, June.
    2. Cooley, Thomas F & Ohanian, Lee E, 1997. "Postwar British Economic Growth and the Legacy of Keynes," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 439-472, June.
    3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    4. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1995. "Have Tax Reforms Affected Investment?," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 131-150, National Bureau of Economic Research, Inc.
    5. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    6. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 126-150, October.
    7. Kocherlakota, Narayana R & Yi, Kei-Mu, 1997. "Is There Endogenous Long-Run Growth? Evidence from the United States and the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 235-262, May.
    8. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    9. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    10. McGrattan, Ellen R. & Schmitz, James Jr., 1999. "Explaining cross-country income differences," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 10, pages 669-737, Elsevier.
    11. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
    12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    13. Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 495-525.
    14. Maddison, A., 1991. "A Long Run Perspective on Saving," Papers 443, Groningen State, Institute of Economic Research-.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmqr:y:1998:i:fall:p:13-27:n:v.22no.4. 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: (Jannelle Ruswick). General contact details of provider: http://edirc.repec.org/data/cfrbmus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.