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Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth

  • Jakub Growiec

    ()

The "linearity critique" of endogenous growth models is presented in a general context of an arbitrary growth model and reassessed. It is argued, that presence of linearities is not a valid criterion for rejecting growth models. Existence of exponential/geometrical steady- state growth (i.e. of a balanced growth path with strictly positive growth rates) necessarily requires some knife-edge condition, which is not satisfied by typical parameter values. Hence, balanced growth paths are fragile and sensitive to smallest disturbances in parameter values. Adding higher order differential/difference equations to a model does not change the knife-edge character of steady-state growth.

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File URL: http://hdl.handle.net/10.1007/s00199-006-0107-5
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 31 (2007)
Issue (Month): 3 (June)
Pages: 489-499

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Handle: RePEc:spr:joecth:v:31:y:2007:i:3:p:489-499
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  1. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier.
  2. Jonathan Temple, 2003. "The Long-Run implications of Growth Theories," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 497-510, 07.
  3. Charles I. Jones, 1999. "Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run," NBER Working Papers 7375, National Bureau of Economic Research, Inc.
  4. Connolly, Michelle & Peretto, Pietro F, 2003. " Industry and the Family: Two Engines of Growth," Journal of Economic Growth, Springer, vol. 8(1), pages 115-48, March.
  5. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
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