Strategic Competition, Dynamics, and the Role of the State

Strategic Competition, Dynamics, and the Role of the State

A New Perspective

New Directions in Modern Economics series

Jamee K. Moudud

Jamee Moudud provides a new microfoundational explanation for the Harrodian long-run or warranted growth rate. The author, emphasizing the role of Keynesian uncertainty, shows that the growth model is anchored in a new interpretation of the Oxford Economists’ Research Group’s microeconomic analysis and a variant of the stock-flow consistent framework. In a distinctly Kaldorian vein, Jamee Moudud discusses the relationship between capital budgeting, public investment, and taxation policy as it relates to the warranted growth rate and its impact on long-term involuntary unemployment.

Chapter 3: A Review of the Literature on Growth

Jamee K. Moudud

Subjects: economics and finance, institutional economics


INTRODUCTION In this chapter both neoclassical and heterodox models of economic growth will be reviewed. We will begin with two variants of the neoclassical approach, the older Solow growth model and the new generation of neoclassical endogenous growth theory (NEGT)1 models. We will then proceed to evaluate Post Keynesian growth models which follow Kalecki in assuming some variant of imperfect competition. We will finally discuss Harrod’s model and a contemporary solution to his instability problem which constitutes the basis of the growth framework of this book. 2. (a) NEOCLASSICAL GROWTH MODELS Solow Growth Model Before the new contributions of P. Romer (1986) and Lucas (1988) the Solow model was the workhorse of neoclassical theorizing on the growth process, although it still remains very influential. The Solow model is based on the following production function: Y 5 F(K, HL) (1) where Y 5 output, K 5 capital input, L 5 labor input, and H is knowledge or the labor effectiveness. The following are the key assumptions of the Solow model (Snowdon and Vane, 2005): The production function exhibits constant returns to scale so that multiplying the inputs by say x will also raise output by x: xY 5 F(xK, xL). This ensures that the production function can be written in intensive form y 5 F(k) where y 5 Y/L and k 5 K/L. b. The production function (1) exhibits diminishing returns to scale for all values of K and L (∂F/∂K . 0, ∂F/∂L . 0, ∂2F/...

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