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Long-Term Growth and Persistence with Endogenous Depreciation: Theory and Evidence

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  • Barañano Mentxaka, Ilaski
  • Romero-Avila, Diego

Abstract

Previous research has shown a strong positive correlation between short-term persistence and long-term output growth as well as between depreciation rates and long-term output growth. This evidence, therefore, contradicts the standard predictions from traditional neoclassical or AK-type growth models with exogenous depreciation. In this paper, we first confirm these findings for a larger sample of 101 countries. We then study the dynamics of growth and persistence in a model where both the depreciation rate and growth are endogenous and procyclical. We find that the model s predictions become consistent with the empirical evidence on persistence, long-term growth and depreciation rates.

Suggested Citation

  • Barañano Mentxaka, Ilaski & Romero-Avila, Diego, 2013. "Long-Term Growth and Persistence with Endogenous Depreciation: Theory and Evidence," IKERLANAK http://www-fae1-eao1-ehu-, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    • Handle: RePEc:ehu:ikerla:9547
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    Keywords

    real business cycle models; endogenous growth; stochastic trends; persistence; capital utilization; dynamic panel data models;
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