Abstract
This chapter continues the analysis of the basic OLG growth model of the previous chapter. First, the GDP growth rate is defined and related to the growth factor of the (efficiency-weighted) capital intensity. Second, assuming the GDP growth is constant over time and equals the natural growth rate, sufficient conditions for the existence of a unique and globally stable steady state are presented. Third, intergenerational efficiency of the steady state is discussed. Fourth, the comparative dynamics of changes in basic OLG model parameters is illustrated graphically. Fifth, the evolution of the main economic variables, associated with capital intensity along the intertemporal equilibrium path and in steady state, is investigated. Sixth, different concepts of neutral technological progress are compared. Finally, an example of growth accounting is presented in order to demonstrate the empirical significance of technological progress for GDP growth.
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Notes
- 1.
Galor and Ryder (1989, 368) show in their proposition 1 that for any given set of well-behaved intertemporal utility functions there exists a production function which satisfies the Inada conditions but still result in a steady state with zero production and consumption.
- 2.
Here we encounter another basic difference between the infinitely-lived agent (ILA) and our OLG approach: the intertemporal consumption allocation, which the infinitely-lived agent chooses in a perfectly competitive market economy excluding externalities, is always Pareto-efficient.
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Farmer, K., Schelnast, M. (2013). Steady State, Factor Income, and Technological Progress. In: Growth and International Trade. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-33669-0_3
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