Economic growth and economic development 540

Introduction to Modern Economic Growth 11.5 Taking Stock This chapter ends our investigation of neoclassical growth models It also opens the way for the analysis of endogenous technological progress in the next part of the book The models presented in this chapter are, in many ways, more tractable and easier than those we have seen in earlier chapters This is a feature of the linearity of the models (most clearly visible in the AK model) This type of linearity removes transitional dynamics and leads to a more tractable mathematical structure Linearity, of course, is an essential feature of any model that will exhibit sustained economic growth If strong concavity sets in (especially concavity consistent with the Inada conditions as in Assumption 2), sustained growth will not be possible Therefore, (asymptotic) linearity is an essential ingredient of any model that will lead to sustain growth The baseline AK model and its cousins make this linear structure quite explicit While this type of linearity will be not as apparent (and often will be derived rather than assumed), it will also be a feature of the endogenous technology models studied in the next part of the book Consequently, many of these endogenous technology models will be relatively tractable as well Nevertheless, we will see that the linearity will often result from much more interesting economic interactions than being imposed in the aggregate production function of the economy There is another sense in which the material in this chapter does not justice to issues of sustained growth As the discussion in Chapter showed, modern economic growth is largely the result of technological progress Except for the Romer model of Section 11.4, in the models studied in this chapter not feature technological progress This does not imply that they are necessarily inconsistent with the data As our discussion in Chapter indicated there is a lively debate about whether the observed total factor productivity growth is partly a result of mismeasurement of inputs If this is the case, it could be that much of what we measure as technological progress is in fact capital deepening, which is the breadand-butter of economic growth in the AK model and its variants Consequently, the debate about the measurement of total factor productivity has important implications for what types of models we should use for thinking about world economic growth and cross-country income differences 526