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Beyond the Linearity Critique: The Knife-Edge Assumption of Steady State Growth

Jakub Growiec ()

GE, Growth, Math methods from EconWPA

Abstract: The "linearity critique" of endogenous growth models is presented in a general context of an arbitrary growth model and reassessed. It is argued, that presence of linearities is not a valid criterion for rejecting growth models. Existence of exponential/geometrical steady- state growth (i.e. of a balanced growth path with strictly positive growth rates) necessarily requires some knife-edge condition, which is not satisfied by typical parameter values. Hence, balanced growth paths are fragile and sensitive to smallest disturbances in parameter values. Adding higher order differential/difference equations to a model does not change the knife-edge character of steady-state growth.

Keywords: long-run economic growth; knife-edge conditions; linearity critique; ordinary differential equations (search for similar items in EconPapers)
JEL-codes: C62 O40 O41 (search for similar items in EconPapers)
Date: 2005-05-09, Revised 2006-01-17
Note: Type of Document - pdf; pages: 20
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Journal Article: Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth (2007) Downloads
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