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Endogeneous Growth with a Declining Rate of Interest

Author

Listed:
  • Mahadeva, L.

Abstract

This article shows that endogeneous growth in capital is compatible with a cecreasing rate of interest when investment is entirely financed by the earnings of the young and when there is an externality effect of capital on the productivity of their labour. And despite the presence of this externality effect, the demand curve for capital is downward sloping. So a decreasing rate of interest along a transition path can no longer be taken as invalidating endogenous growth and endogenous growth models do not necessarily imply upward sloping demand curves.

Suggested Citation

  • Mahadeva, L., 1997. "Endogeneous Growth with a Declining Rate of Interest," Economics Working Papers eco97/34, European University Institute.
  • Handle: RePEc:eui:euiwps:eco97/34
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    More about this item

    Keywords

    ECONOMIC GROWTH ; INTEREST RATE;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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