Investment and Growth

Gabriele Tondl
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Gabriele Tondl: Wirtschaftsuniversität

Chapter 5 in Convergence After Divergence? Regional Growth in Europe, 2001, pp 186-209 from Springer

Abstract: Abstract In the neo-classical model of growth, the investment level in an economy determines its steady state income level. In the Solow growth model, where investment is equal to saving, a permanent increase in the saving rate leads to a temporary increase of the growth rate, but it shifts up the steady state income once. The Ramsey version of the neo-classical model, where saving is determined by the rate of consumer’s time preference, permits to explain the lower investment share of poor economies which can result into a poverty trap. Consequently, the neo-classical model considers low economic development to be a result of an investment gap.

Date: 2001
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DOI: 10.1007/978-3-7091-6219-4_5

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