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Endogenous Growth and the role of History

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  • Mervyn A. King
  • Mark Robson

Abstract

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.

Suggested Citation

  • Mervyn A. King & Mark Robson, 1989. "Endogenous Growth and the role of History," NBER Working Papers 3151, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3151
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-681, September.
    3. Nicholas Kaldor, 1975. "What is Wrong with Economic Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 89(3), pages 347-357.
    4. Danthine, Jean-Pierre & Donaldson, John B, 1981. "Stochastic Properties of Fast vs. Slow Growing Economies," Econometrica, Econometric Society, vol. 49(4), pages 1007-1033, June.
    5. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
    6. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    7. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    8. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    9. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    10. Canning, David J, 1988. "Increasing Returns in Industry and the Role of Agriculture in Growth," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 463-476, September.
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    Cited by:

    1. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    2. van de Klundert, Theo & Smulders, Sjak, 1995. "Strategies for Growth in a Macroeconomic Setting," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(4), pages 388-411, December.
    3. Heger, Diana, 2004. "The Link Between Firms? Innovation Decision and the Business Cycle: An Empirical Analysis," ZEW Discussion Papers 04-85, ZEW - Leibniz Centre for European Economic Research.
    4. Frédéric Lordon, 1995. "Cycles et chaos dans un modèle hétérodoxe de croissance endogène," Revue Économique, Programme National Persée, vol. 46(6), pages 1405-1432.
    5. Riccardo Faini & Jaime Melo, 1993. "Fiscal Issues in Adjustment: An Introduction," Palgrave Macmillan Books, in: Riccardo Faini & Jaime Melo (ed.), Fiscal Issues in Adjustment in Developing Countries, pages 1-19, Palgrave Macmillan.
    6. Frédéric Lordon, 1991. "Théorie de la croissance : quelques développements récents [Deuxième partie : la redécouverte des rendements croissants]," Revue de l'OFCE, Programme National Persée, vol. 37(1), pages 191-243.
    7. Gilles Saint-Paul, 1994. "Les récessions sont-elles productives ? Une approche en termes de coût d'opportunité," Revue Économique, Programme National Persée, vol. 45(3), pages 897-904.
    8. Eric M. Engen & Jonathan Skinner, 1992. "Fiscal Policy and Economic Growth," NBER Working Papers 4223, National Bureau of Economic Research, Inc.
    9. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.

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