Larry E. Jones

Endogenous Growth

Newer Stuff

"Neoclassical Models of Endogenous Growth: The Effects of Fiscal Policy, Innovation and Fluctuations," with Rodolfo E. Manuelli, in The Hancbook of Economic Growth, Phillippe Aghion and Steven Durlauf, Eds., Elsevier, 2005.

This is a survey paper on the properties of convex models of endogenous growth. It does have quite a bit of new work in it, however. Of particular interest are the new results on the relationship between volatility and mean growth in continuous time models of endogenous growth and a simple model of endogenous Innovation in the spirt of the recent work by Boldrin and Levine.

Stochastic Endogenous Growth

• EGS1. “Fluctuations in Convex Models of Endogenous Growth I: Growth Effects,” with Rodolfo E. Manuelli, Henry E. Siu and Ennio Stacchetti, Review of Economic Dynamics, vol. 8, 2004, 780-804. Click Here to Download a Copy of this paper.
• EGS2. “Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties,” with Rodolfo E. Manuelli and Henry E. Siu, Review of Economic Dynamics, vol. 8, 2004, 805-828. Click Here to Download a copy of this paper.
• EGS3. "Taxation Explanations for the Productivity Slowdown," 1999, with R. E. Manuelli and H. Siu.

These three papers deal with stochastic versions of the endogenous growth models described in EGFP1-EGFP5 above. There are a variety of questions addressed.

These three papers deal with stochastic versions of the endogenous growth models described in EGFP1-EGFP5 above. There are a variety of questions addressed.

• First, what is the sign of the effect of increased uncertainty on average growth?
• Does a more random government tax policy increase or decrease the average growth rate in an economy?
• Are these effects quantitatively large?

To address questions such as these, stochastic models of endogenous growth are necessary, and this is what is developed in these papers. We show that in some simple examples, analytic results are possible, but most of these require an assumption of full depreciation. Moreover, even the qualitative character of the results is sensitive to this assumption. Quantitatively, the effects of uncertainty on average performance seem to be quite small, unless the amount of uncertainty is large (i.e., much larger than business cycle frequency shocks in the US).

Of course, once you have a model of growth driven by shocks, it can be used, as in the real business cycle literature, to model the business cycle. We compare and contrast this class of models with the standard RBC ones. There are some interesting differences between the two classes of models-- the endogenous growth versions feature more persistence in the growth rate process, higher labor supply volatility and an extreme sensitivity to curvature parameters in the utility function.

Endogenous Growth

This is an area in which I have been working with my good friend and co-author, Rody Manuelli for many years. The papers included here range quite a bit in topic: basic mathematical results describing models in which the growth rate is asymptotically positive, the effects of fiscal and monetary policy on long run growth, the use of this class of models to match business cycle facts, and models trying to handle the political economy of pollution and growth.

• EGFP1. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," joint with R. E. Manuelli, Journal of Political Economy , (1990), Vol. 98, pages 1008-1038. This paper has also been reprinted in Economic Growth: Theory and Evidence , G. Grossman, Ed., 1996, Elgar Publishers, Cheltenham.
• EGFP2. "Finite Lifetimes and Growth," joint with R. E. Manuelli, Journal of Economic Theory , (1992), Vol. 58, No. 2, pages 171-197.
• EGFP3. "Optimal Taxation in Models of Endogenous Growth," joint with R. E. Manuelli and Peter E. Rossi, Journal of Political Economy , (1993), Vol. 101, No. 3, pages 485-517. This paper has also been reprinted in a volume dedicated to Bob Lucas, and I should get the reference for it.
• EGFP4. "Endogenous Growth Theory: An Introduction," joint with R. E. Manuelli, Journal of Economic Dynamics and Control , (in English), Vol. 21, No. 1, pages 1-22, and Cuadernos Economicos (in Spanish), 1994, No. 58, pages 1-22.
• EGFP5. "The Sources of Growth," joint with R. E. Manuelli, Journal of Economic Dynamics and Control , (in English), Vol. 21, No. 1, pages 75-114, and Cuadernos Economicos (in Spanish), 1994, No. 58, pages 71-106.

These papers all deal with models of endogenous growth, their basic properties and the effects of fiscal policy.

EGFP1. is a paper on the basic models of endogenous growth. We consider the question: What, exactly, is needed in economic model with a time stationary technology to generate growth in output as an equilibrium outcome? We show that it is both necessary and sufficient that the technology be 'sufficiently productive'-- formally that the technology is bounded below by a CRS technology that is linear in the set of capital stocks. We supply a basic result on the existence of equilibrium and characterize the types of fiscal policies that have effects on the long run rate of growth in the model (as opposed to those that only have 'level' effects).

In EGFP2, we analyze the class of models discussed in EGFP1 and show that, in general, these will not generate growth if the population has an OLG structure. Growth can be generated with this structure either through intergenerational externalities (this puts us back in the world in EGFP1), convex two sector models, external effects or programs of redistribution from old consumers to young ones.

In EGFP3, we study the form of Ramsey optimal tax policies in models of endogenous growth of the type discussed in EGFP1, above. We extend the Chamley-Judd results concerning the properties of capital income taxation, and numerically calculate the Ramsey solutions for a variety of models and parameter values. Of particular interest is the growth effect of a switch to the Ramsey optimal policy. We find this to be in the range of .25% to 2% depending on parameter values.

EGFP4 and EGFP5 appear in a volume on models of endogenous growth edited by Rody Manuelli and me which has appeared in both Spanish and English. EGFP4 is the introduction to this volume and EGFP5 is a survey of the theoretical work in this area.