Endogenous Growth and the role of History
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NBER Working Paper No. 3151
Issued in October 1989
NBER Program(s): EFG PE EFG
This paper presents a model in which the realizations of stochastic tax and depreciation rates determine both the level and growth rate of output: externalities to investment - learning by watching - are characterized by diminishing returns, yielding a nonlinear "technical progress function". This results in multiple steady-state growth rates. History matters. It is possible that two economies with identical "deep" parameters and initial capital stocks may cycle around different trend growth rates, depending upon the historical path of fiscal shocks. Growth and cycles interact, and the nonlinearity means that output changes cannot be decomposed into a stochastic trend and a trend-stationary process.
Published: Scandinavian Journal of Economics, vol 95, no., 4 p. 445-466 (1993)
This paper is available as PDF (274 K) or DjVu (206 K) (Download viewer) or via email.
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