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The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth

Author

Listed:
  • David Greasley

    (School of History, Classics and Archaeology, University of Edinburgh)

  • Nick Hanley

    (School of Geography and Sustainable Development, University of St. Andrews)

  • Eoin McLaughlin

    (School of Geography and Sustainable Development, University of St. Andrews)

  • Les Oxley

    (Department of Economics, University of Waikato)

Abstract

Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare- maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870 -2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country’s wealth or capital is taken into account.

Suggested Citation

  • David Greasley & Nick Hanley & Eoin McLaughlin & Les Oxley, 2014. "The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth," Discussion Papers in Environment and Development Economics 2014-01, University of St. Andrews, School of Geography and Sustainable Development.
    • Handle: RePEc:sss:wpaper:2014-01
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    More about this item

    Keywords

    inter-temporal utility maximisation; modern growth theory; US; comprehensive wealth;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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