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Balanced growth and structural breaks: Evidence for Germany

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  • Herzer, Dierk
  • Kemper, Niels
  • Zamparelli, Luca

Abstract

One of the central hypotheses of the neoclassical growth literature is the balanced- growth hypothesis, which predicts that output, consumption, and investment grow at the same rate. Empirically, this implies that the consumption-to-output ratio and the investment-to-output ratio must be stationary and that consumption and investment must be cointegrated with output. This paper tests these implications with respect to Germany, using unit root tests and cointegration techniques that allow for an endogenously determined structural break. We find that the long-run growth path of the German economy is consistent with the balanced-growth hypothesis if we allow for a structural break associated with the worldwide productivity slowdown of the early 1970s.

Suggested Citation

  • Herzer, Dierk & Kemper, Niels & Zamparelli, Luca, 2009. "Balanced growth and structural breaks: Evidence for Germany," MPRA Paper 14944, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14944
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    References listed on IDEAS

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    Cited by:

    1. Luca Zamparelli, 2011. "Induced Innovation, Endogenous Growth, and Income Distribution: a Model along Classical Lines," Working Papers CELEG 1102, Dipartimento di Economia e Finanza, LUISS Guido Carli.

    More about this item

    Keywords

    Balanced growth × Unit roots × Cointegration × Endogenous structural breaks;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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