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TRANSITIONAL DYNAMICS OF AN ENDOGENOUS GROWTH MODEL WITH AN EROSION EFFECT *
Author(s) -
SEQUEIRA TIAGO NEVES
Publication year - 2008
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2008.01068.x
Subject(s) - endogenous growth theory , saddle , convergence (economics) , economics , growth model , erosion , path (computing) , econometrics , human capital , mathematics , mathematical economics , geology , computer science , mathematical optimization , macroeconomics , paleontology , programming language , economic growth
The convergence features of an endogenous growth model with physical capital, human capital and R&D have been studied. We add an erosion effect (supported by empirical evidence) to this model, and fully characterize its convergence properties. The dynamics is described by a fourth‐order system of differential equations. We show that the model converges along a one‐dimensional stable manifold and that its equilibrium is saddle‐path stable, for most plausible values for the parameters. We also argue that one of the implications of considering this ‘erosion effect’ is the increase in the adherence of the model to data.