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U-shaped Paths of Consumption and Physical Capital in Lucas-type Growth Models

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  • Farhad Nili

    (Keele University, UK)

Abstract

This paper considers transitional dynamics of consumption and physical capital in Lucas-type growth models. We find that when the ratio of physical to human capital is sufficiently high, it is optimal for both consumption and physical capital to fall for a finite period and then rise along their transition paths. Endogenous growth models may therefore not be able to generate a sustainable path of development when the steady state coexists with the transitional dynamics. According to the extent of consumption smoothing, we characterize the stages of transition in three different growth regimes. Particularly in the normal and paradoxical cases, dynamics of the Lucas model is contrasted with that of Ramsey.

Suggested Citation

  • Farhad Nili, 2002. "U-shaped Paths of Consumption and Physical Capital in Lucas-type Growth Models," Development and Comp Systems 0211002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpdc:0211002
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    References listed on IDEAS

    as
    1. Lutz G. Arnold, 2000. "Endogenous technological change: a note on stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 219-226.
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    3. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January.
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    5. Ortigueira, Salvador, 1998. "Fiscal policy in an endogenous growth model with human capital accumulation," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 323-355, July.
    6. Nick Hanley, 2000. "Macroeconomic Measures of ‘Sustainability’," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 1-30, February.
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    More about this item

    Keywords

    Lucas growth model; transitional dynamics; physical to human capital ratio; sustainability;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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