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THE DYNAMIC PROPERTIES OF ENDOGENOUS GROWTH MODELS

Published online by Cambridge University Press:  11 March 2013

Norman Sedgley  and
Bruce Elmslie
Norman Sedgley*
Affiliation:
Loyola University in Maryland
Bruce Elmslie
Affiliation:
University of New Hampshire
*
Address correspondence to: Norman Sedgley, Department of Economics, Sellinger School of Business and Management, Loyola University in Maryland, Baltimore, MD 21210, USA; e-mail: nsedgley@loyola.edu.
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Abstract

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This paper explores the dynamics of semiendogenous versus fully endogenous growth models in “lab equipment” specifications of the models with expanding sectors. Capital is allowed to accumulate and is used, together with other inputs, to produce new knowledge. The stability of the steady state path is found to be determined by the inequality and/or knife-edge restrictions needed to produce steady state growth. This paper takes the ratio of the shadow price of capital to knowledge and the level of consumption as jump variables. Semiendogenous growth models lead to a 4 × 4 dynamic system where the sign of the coefficient matrix of the log linearized dynamic system is indefinite, leading to a potential for both stable and unstable equilibria. The knife-edge restrictions needed to generate policy influences on growth are shown to be restrictions that reduce the system to 3 × 3 with a positive definite coefficient matrix, thereby guaranteeing a globally stable equilibrium. Implications for empirical testing are addressed.

Keywords

Endogenous GrowthDynamic PropertiesTransitional DynamicsStability

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 5 , July 2013 , pp. 1118 - 1134
Copyright
Copyright © Cambridge University Press 2013 

References

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