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Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path

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  • Harashima, Taiji

Abstract

In this paper, I simulate how an economy grows endogenously and reaches a balanced growth path supposing that households behave under the MDC (maximum degree of comfortability)-based procedure, where MDC indicates the state at which a household feels most comfortable with its combination of income and assets. Although it is not easy to numerically simulate the path to a steady state in dynamic economic growth models in which households behave generating rational expectations, it is easy if households are supposed to behave under the MDC-based procedure to reach a steady state. The simulation results indicate that an economy can indeed grow endogenously as predicted theoretically, although some small scale effects exist. If uncompensated knowledge spillovers are restrained, however, large scale effects are generated. A lower degree of risk aversion increases the growth rate. In addition, economies converge if productivities are identical, but they diverge if they are not.

Suggested Citation

  • Harashima, Taiji, 2023. "Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path," MPRA Paper 119391, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119391
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Convergence; Endogenous growth; Scale effects; Simulation; Uncompensated knowledge spillovers;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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