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ON THE DYNAMIC EFFICIENCY OF BALANCED GROWTH PATHS IN AN ENDOGENOUS GROWTH SETTING

Published online by Cambridge University Press:  22 March 2016

Elena Del Rey  and
Miguel-Angel Lopez-Garcia
Elena Del Rey
Affiliation:
University of Girona
Miguel-Angel Lopez-Garcia*
Affiliation:
Autonomous University of Barcelona
*
Address correspondence to: Miguel-Angel Lopez-Garcia, Applied Economics Department, Autonomous University of Barcelona, 08193 Bellaterra, Barcelona, Spain; e-mail: [email protected].
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Abstract

In overlapping-generations economies with life-cycle saving and exogenous growth, the laissez-faire equilibrium balanced growth path fails in general to achieve optimality, but is dynamically efficient if the marginal product of physical capital is greater than the growth rate of the economy. In this paper, we accommodate the concept of dynamic (in)efficiency in an overlapping-generations economy with endogenous growth due to human capital accumulation. We show that the condition that the marginal product of physical capital is larger than the growth rate of the economy is necessary but no longer sufficient for the dynamic efficiency of the laissez-faire equilibrium balanced growth path.

Keywords

Endogenous GrowthHuman CapitalDynamic Efficiency
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 8 , December 2017 , pp. 1837 - 1856
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

We are grateful to two anonymous referees for their helpful comments on an earlier version. We also acknowledge financial support from Instituto de Estudios Fiscales (Spanish Ministry of Finance), the Spanish Ministry of Science (Projects ECO2013-45395-R and ECO2012-37572) and the Generalitat de Catalunya (Contracts 2014SGR1360 and 2014SGR327 and the XREPP).

References

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