Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175922
Authors: 
Yetkiner, I. Hakan
Year of Publication: 
2012
Series/Report no.: 
Working Papers in Economics 12/04
Abstract: 
This study is a short note designed to underline the importance of using the theoretically required form of accumulation functions. It is now a common knowledge that a growth model must rely on non-diminishing returns to a factor of production in order to generate endogenous growth. In Lucas (1988), for example, there is no diminishing-returns to the accumulation of human capital, which is the source of endogenous growth in the model. This rule, however, can lead to the following potentially misleading assumption: diminishing marginal productivity to each factor of production - given that there is no other source of long run growth - is sufficient for generating steady state equilibrium at levels. In this short note, we make two points. First, diminishing marginal productivity alone is not necessarily sufficient for generating steady state equilibrium at levels. Second, the inclusion of a theoretically required counter-force in the accumulation function together with diminishing returns is sufficient for generating steady state equilibrium. In conclusion, we heuristically argue that an accumulation function with no theoretically required counter-moving force, with or without diminishing returns, may bias the results of the model.
Subjects: 
Accumulation function
Stationary state
Steady state
Differential equations
Economic Growth
Long-run Equilibrium
JEL: 
O10
O15
O41
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size
272.57 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.