Chapter

The Determinants of the Share of Investment in Output and the Complete Growth Model

Maurice FitzGerald Scott

in A New View of Economic Growth

Published in print June 1991 | ISBN: 9780198287421
Published online November 2003 | e-ISBN: 9780191596872 | DOI: http://dx.doi.org/10.1093/0198287429.003.0008

Series: Clarendon Paperbacks

 The Determinants of the Share of Investment in Output and the Complete Growth Model

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Equations to determine the rate of investment are needed to close the model of Ch. 6. There seems to be no generally accepted theory of long‐run saving and investment. The capital stock adjustment principle makes investment respond to output, whereas we require causation to flow in the opposite direction. A simple Ramsey approach is adopted, faute de mieux, in which a utility function determines the rate of discount, which is equated to the marginal rate of return. There are then eight equations to determine eight endogenous variables.

Keywords: capital stock adjustment principle; investment; long‐run saving; Ramsey; rate of discount; rate of return; utility function

Chapter.  13342 words.  Illustrated.

Subjects: Economic Development and Growth

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