Structural Dynamics and Economic Growth by Richard Arena & Pier Luigi Porta

Author:Richard Arena & Pier Luigi Porta
Language: eng
Format: mobi, pdf
Tags: Luigi L.–Political and social views, Economic Development, Pasinetti, Sustainable Development
Publisher: Cambridge University Press
Published: 2012-08-29T18:30:00+00:00

À

ÁÃ

pt ¼ Et= 1 þ Wu=Wp

and Eut ¼ Et 1 À 1= 1 þ Wu=Wp :

Writing K for 1/(1þWu/Wp) and substituting the last two expressions

into (1) we get

rtþ1 ¼ rt þ apEtK À auEtð1 À KÞ ¼ rt þ ðhà þ hrtÞ½apK À auð1 À Kފ: ð5Þ

Simplifying once more by writing Z for the expression in the square

brackets, (5) becomes

rtþ1 ¼ hÃZ þ ð1 þ hZÞrt

ð6Þ

which is evidently a first-order linear difference equation in rt with

constant coefficients, a difference equation of the simplest form, with

the well-known explicit solution

rt ¼ r0ð1 þ hZÞt þ hÃ= À hZ where

ð7Þ

Z ¼ ½apK À auð1 À Kފ and K ¼ 1=ð1 þ Wu=WpÞ:

ð8Þ

Thus, (7) and (8) take the simplest form we encounter in dealing with

a difference equation model:

rt ¼ u þ vxt; u and v constants:

ð9Þ

As is obvious, the intertemporal trajectory of r evidently depends on the

magnitude and sign of

x ¼ 1 þ hZ ¼ 1 þ h½apK À auð1 À Kފ

ð10Þ

¼ 1 À hau þ hðap þ auÞ=ð1 þ Wu=WpÞ:

This clearly presents us with four possible types of time path: stable

monotonic, unstable monotonic, stable oscillatory and unstable oscillatory.

There is no point in going further along these lines because, as can

hardly be denied, the model is markedly oversimple and patently unreal-

istic. At the very least it requires sufficient complication to bring in other

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134

William J. Baumol

critical variables, their position in the structure of the model and the

nature and magnitude of their influence. But that is all a task for future

research. My purpose here has not been to provide a model that is

rendered defensible by the range of considerations it encompasses or

empirical evidence that supports its realism and accuracy. Rather, my

more limited goal has been to show only that it is indeed possible to

construct a structural macromodel that includes the role of the entrepre-

neur as an indispensable contributor to rapid economic growth. Its aim

is to point out a promising direction for such work, in the hope that

others will find themselves able to follow this lead and consider it

profitable to do so.

R E F E R E N C E S

Baumol, W.J. (2009), Endogenous Growth: Valuable Advance, Substantive

Misnomer, in Boianovsky, M. and Hoover, K.D. (eds.), Robert Solow and the

Development of Growth Economics, Durham and London: Duke University

Press, pp. 304–314.

Pasinetti, L. and Spaventa, L. (1960), Verso il superamento della modellistica

aggregata nella teoria dello sviluppo economico, Rivista di Politica

Economica, vol. XXV, 1751–1781.

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Cambridge Books Online © Cambridge University Press, 2012

Part II

Structural dynamics: the Cambridge

Keynesian perspective

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