Growth outside the stable path: Lessons from the European reconstruction

Francisco Alvarez-Cuadrado ()

European Economic Review, 2008, vol. 52, issue 3, pages 568-588

Abstract: This paper exploits a natural experiment, the large destruction of capital in continental Europe during World War II, to characterize the transitional dynamics of an economy that begins with a capital stock below its steady state level. We use these regularities as a benchmark to discriminate among competing growth specifications. A model that combines non-separabilities in preferences with a technology that restricts the degree of substitutability between inputs outperforms the widely used AK and Cobb-Douglas specifications with time-separable preferences. Our results suggest that policy evaluations based in growth models that overlook non-separabilities in preferences or impose strong restrictions on the technological structure might be grossly misleading.

Date: 2008
View citations in EconPapers

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V64 ... c6bf325d34ece95a0bd8
Full text for ScienceDirect subscribers only

Related works:
Working Paper: GROWTH OUTSIDE THE STABLE PATH: LESSONS FROM THE EUROPEAN RECONSTRUCTION (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this article

European Economic Review is edited by G. A. Pfann, Z. Eckstein, E. Gal-Or, T. Gylfason and J. Von Hagen

More articles in European Economic Review from Elsevier
Series data maintained by Heidi Boesdal ().