A Remark on the Form of Accumulation Functions in Economic Growth Models

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This study is a remark designed to underline the importance of using the right form of accumulation functions in economic growth models. After appearance of endogenous growth models in the growth literature, exclusion of a counter-force in the accumulation function, though required by the nature of the variable, is started to be made more frequently. This (mis-)behavior is due to now a common knowledge that a growth model must rely on non-diminishing returns to a factor of production in order to generate endogenous growth. This rule, however, can lead to the following potentially misleading assumption: diminishing marginal productivity to each factor of production-given that there is no other source of long run growth-is sufficient for generating (the true) steady state equilibrium (at levels). In this work, we heuristically argue that an accumulation function with no counter-moving force, though it is required by the nature of the variable, with or without diminishing returns, may bias the results of the model.

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Accumulation function , counter , moving force , steady state , differential equations , economic growth.

Ege Academic Review (EAR)

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Ege Academic Review (EAR)