II.E. - research and development etc Recall the growth accounting equation from Section II.B Up until now we have assumed that but now we assume

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II. E.Growth from Technological Change The basic Solow Model predicts a continual slowdown in growth leading to an end of growth in the long-run. However, developed countries have continued to grow for more than three centuries. Furthermore, growth in the 20 th century has shown little downward trend. We need to extend the Solow model to allow for long-run or steady state growth. The source of this growth is an improvement in the quality of the inputs and an improvement in the method of production—we will call both sources of growth “technological progress.” Technological progress will be an exogenous variable in our analysis (in a deeper model is would be affected by education, on-the-job training,
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Unformatted text preview: research and development etc.). Recall the growth accounting equation from Section II.B. Up until now we have assumed that , but now we assume that , where g > 0. Using the key equation for capital accumulation from the Solow model we can write the growth equation as . For the economy to experience steady state growth where y grows at a constant rate, f ( k )/ k = y / k must be constant. This means that y and k must grow at the same rate, or . Substituting this condition for the steady into the growth accounting equation we started with and solving for the growth rate in y gives us the formula for steady state growth...
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This note was uploaded on 02/19/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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II.E. - research and development etc Recall the growth accounting equation from Section II.B Up until now we have assumed that but now we assume

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