GROWTH OUTSIDE THE STABLE PATH: LESSONS FROM THE EUROPEAN RECONSTRUCTION

Francisco Alvarez-Cuadrado ()

Departmental Working Papers from McGill University, Department of Economics

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.

JEL-codes: E10 O40 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006-08
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.mcgill.ca/files/economics/growthoutsidethe.pdf (application/pdf)

Related works:
Journal Article: Growth outside the stable path: Lessons from the European reconstruction (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:mcl:mclwop:2006-02

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