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A VAR evaluation of classical growth theory

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  • Lüger, Tim

Abstract

Over the past two decades, there have been numerous attempts in economic theory to model the historical regime of a Malthusian trap as well as the transition to growth in one coherent framework, or in other words, a unified growth theory. However, in most of these models, an important effect suggested by Malthus has been frequently omitted. By including what he had called "the great preventive check" in the traditional Malthusian model which is based on the principle of population, the principle of diminishing returns and the principle of labor division, the transition can be modelled in a very simple dynamic macroeconomic framework. The aim of this paper is to first construct and calibrate the suggested classical model and to eventually employ a conventional VAR-Method to provide evidence of the above principles using country-specific annual historical data on crude birth rate, crude death rate and GDP per capita growth rate. As a result, it is argued that emerging economies follow a universal macroeconomic pattern of development. A decreasing death rate is succeeded by a decreasing birth rate which at the same time induces GDP per capita to rise sustainably. The correspondingly advanced microeconomic theory suggests that increasing life expectancy tends to create a demographic structure that is much less prone to overpopulation.

Suggested Citation

  • Lüger, Tim, 2018. "A VAR evaluation of classical growth theory," Darmstadt Discussion Papers in Economics 231, Darmstadt University of Technology, Department of Law and Economics.
  • Handle: RePEc:zbw:darddp:231
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    More about this item

    Keywords

    Demographic Transition; Malthusian Trap; Unified Growth Theory; Classical Growth Theory; Vectorautoregression;

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • 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
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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