Endogenous Growth and the role of History

Mervyn A. King and Mark Robson

No 3151, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a model in which the realizations of stochastic tax and depreciation rates determine both the level and growth rate of output: externalities to investment - learning by watching - are characterized by diminishing returns, yielding a nonlinear "technical progress function". This results in multiple steady-state growth rates. History matters. It is possible that two economies with identical "deep" parameters and initial capital stocks may cycle around different trend growth rates, depending upon the historical path of fiscal shocks. Growth and cycles interact, and the nonlinearity means that output changes cannot be decomposed into a stochastic trend and a trend-stationary process.

Date: 1989-10
Note: EFG PE EFG
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Published as Scandinavian Journal of Economics, vol 95, no., 4 p. 445-466 (1993)

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