Endogeneous Growth with a Declining Rate of Interest

Lavan Mahadeva

Economics Working Papers from European University Institute

Abstract: This article shows that endogeneous growth in capital is compatible with a cecreasing rate of interest when investment is entirely financed by the earnings of the young and when there is an externality effect of capital on the productivity of their labour. And despite the presence of this externality effect, the demand curve for capital is downward sloping. So a decreasing rate of interest along a transition path can no longer be taken as invalidating endogenous growth and endogenous growth models do not necessarily imply upward sloping demand curves.

Keywords: ECONOMIC GROWTH; INTEREST RATE (search for similar items in EconPapers)
JEL-codes: O40 (search for similar items in EconPapers)
Pages: 16 pages
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco97/34

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