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Is The Output-Capital Ratio Constant In The Very Long Run?

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  • Jakob Madsen
  • Russell Smyth

Abstract

A key prediction of standard models of economic growth is that the output-capital ratio is constant along the economy's balanced growth path. Using data for 16 OECD countries over 135 years we examine whether the output-capital ratio reverts to a constant in the long run using univariate and panel stationarity tests with structural breaks. Univariate unit root tests with one and two breaks in the mean suggest that, in most circumstances, the output-capital ratio fails to revert towards a mean. However, when we allow for up to five breaks in the mean we find that for 15 of the 16 countries, the output-capital ratio is stationary and that the output-capital ratio is also panel stationary.

Suggested Citation

  • Jakob Madsen & Russell Smyth, 2008. "Is The Output-Capital Ratio Constant In The Very Long Run?," Monash Economics Working Papers 10/08, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2008-10
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    Cited by:

    1. Jan Mikael Malmaeus, 2016. "Economic Values and Resource Use," Sustainability, MDPI, Open Access Journal, vol. 8(5), pages 1-20, May.
    2. repec:gam:jsusta:v:8:y:2016:i:5:p:490:d:70302 is not listed on IDEAS
    3. Stolzenburg, Ulrich, 2015. "The agent-based Solow growth model with endogenous business cycles," Economics Working Papers 2015-01, Christian-Albrechts-University of Kiel, Department of Economics.
    4. Judzik, Dario & Sala, Hector, 2015. "The determinants of capital intensity in Japan and the US," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 78-98.
    5. Borozan, Djula, 2017. "Testing for convergence in electricity consumption across Croatian regions at the consumer's sectoral level," Energy Policy, Elsevier, vol. 102(C), pages 145-153.
    6. Madsen, Jakob B. & Raschky, Paul A. & Skali, Ahmed, 2015. "Does democracy drive income in the world, 1500–2000?," European Economic Review, Elsevier, vol. 78(C), pages 175-195.
    7. Trofimov, Ivan D., 2017. "Capital productivity in industrialized economies: evidence from error-correction model and Lagrange Multiplier tests," MPRA Paper 81655, University Library of Munich, Germany.

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