Sustained endogenous growth with decreasing returns and heterogeneous capital

✍ Scribed by Michael Kaganovich

• Publisher: Elsevier Science
• Year: 1998
• Tongue: English
• Weight: 205 KB
• Volume: 22
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(97)00106-1

✦ Synopsis

The possibility of sustained long-run growth is typically associated with the presence of some endogenous 'engine of growth'. It may allow the economy to grow without bound despite the use of some non-reproducible resources. Such situations can lead to dynamic models combining the features of sustainable growth and decreasing returns. One-sector models of this kind have recently attracted much attention in macroeconomics applications. Their approximate linearity for the purposes of long-run analysis has been noted. This paper is aimed at establishing the general fact: dynamic models (one-or multisector) which are characterized by sustained endogenous growth with non-increasing returns display the patterns of optimal growth asymptotically equivalent to those generated by models with linear technology. I consider a neoclassical growth model with heterogeneous capital, develop its linear counterpart, and prove their asymptotic equivalence in terms of long-run optimal growth rates and cross-sectoral profiles of consumption, real interest rates and relative prices. This result also implies the 'non-substitution' theorem for the neoclassical dynamic model of sustained growth: optimal input profiles, relative prices, and interest rates are asymptotically independent of intertemporal preferences.