Growth outside the stable path: Lessons from the European reconstruction
This paper exploits a natural experiment, the large destruction of capital in continental Europe during World War II, to characterize the transitional dynamics of an economy that begins with a capital stock below its steady state level. We use these regularities as a benchmark to discriminate among competing growth specifications. A model that combines non-separabilities in preferences with a technology that restricts the degree of substitutability between inputs outperforms the widely used AK and Cobb-Douglas specifications with time-separable preferences. Our results suggest that policy evaluations based in growth models that overlook non-separabilities in preferences or impose strong restrictions on the technological structure might be grossly misleading.
Year of publication: |
2008
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Authors: | Alvarez-Cuadrado, Francisco |
Published in: |
European Economic Review. - Elsevier, ISSN 0014-2921. - Vol. 52.2008, 3, p. 568-588
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Publisher: |
Elsevier |
Saved in:
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