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Transition Dynamics in the Neoclassical Growth Model: The Case of South Korea

Many cases of successful economic development, such as South Korea, exhibit long periods of sustained capital accumulation rates. This empirical feature is at odds with the standard neoclassical growth model which predicts initially high and then declining capital accumulation rates. We show that minor modifications of the neoclassical model go a long way towards accounting for the transition dynamics of the South Korean economy. Our modifications recognize that (1) agriculture essentially does not use reproducible capital, and that during the transition period (2) the relative price of capital declines substantially, and (3) the nonfarm employment share increases substantially.

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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 565.

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Length: 29 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:roc:rocher:565
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University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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