Transitional Dynamics and Endogenous Growth Revisited: the Case of Public Capital
The last two decades have seen a remarkable flourishing of dynamic models in the field of Macroeconomics. Within this broad framework, a particular area of research that has been especially active- after decades of being almost dormant– is the one that focuses in economic growth. Following the pathbreaking contribution of (1986), economists have been working intensively in this range of issues in order to ascertain which are the crucial factors that promote economic development or, on the contrary, condemn a country to poverty and stagnation for long periods of time. In parallel to theoretical contributions, the empirical tests of these models have also been abundantly carried out following the seminal contribution of (1991). However, perhaps one of the particular aspects of economic growth models that has been somehow neglected, in part due to its intrinsic difficulty, is the analysis of the transitional dynamics of the models towards the Balanced Growth Path (BGP) 1. In effect, it is frequent for economist to solve their models under the assumption of a constant rate of growth of relevant variables, since this procedure makes the analysis tractable2 and, on the other hand, the ultimate goal of these models is to predict the long run behaviour of the economy. Notwithstanding this practice, the study of the transition of a particular model to the steady state may prove useful for some reasons: first, because it helps ascertain the short run implications of the model and secondly, because it can provide an integrated framework for the joint analysis of economic growth and fluctuations. Finally, it performs as a good test of the oft-debated hypothesis of convergence.
KeywordsProduction Function Marginal Productivity Endogenous Growth Competitive Equilibrium Social Planner
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