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On sustained economic growth with wealth effects
Author(s) -
Roy Santanu
Publication year - 2010
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2009.00120.x
Subject(s) - economics , marginal product of capital , stock (firearms) , consumption (sociology) , monotone polygon , capital (architecture) , growth rate , bounded function , growth model , marginal utility , microeconomics , capital accumulation , regular polygon , econometrics , mathematical economics , mathematics , capital formation , profit (economics) , financial capital , mechanical engineering , mathematical analysis , social science , geometry , archaeology , sociology , engineering , history
In a discounted one‐sector convex model of optimal economic growth where utility may depend on both consumption and capital stock, I derive necessary and sufficient conditions for sustained growth (unbounded expansion of capital and consumption). Conditions for bounded growth and extinction are also outlined. Optimal paths may be non‐monotone. Sustained growth may occur even though the asymptotic marginal productivity is less than the discount rate and may require the initial capital stock to be above a critical level. The behavior of the marginal rate of substitution between consumption and capital plays a crucial role in the conditions.