How can society improve its living standards? What are the conditions necessary for prosperity? These are the questions that define the essence of growth theory. In this user-friendly book, Olivier de la Grandville provides a fascinating introduction to the theory of economic growth and shows how many results from this field are of paramount importance for society. The classical mechanics of the growth process are carefully explained, with two chapters devoted to the fundamental issue of the substitution of labor for capital in the growth process (co-written with Robert M. Solow, winner of the Nobel Prize in Economics). The book also addresses the fundamental question of the optimal investment rate of an economy. In addition, de la Grandville shows us that by unifying the descriptive and normative aspects of growth theory we can generate many fresh insights, including a proof of Adam Smith's 'Invisible Hand' conjecture.

• All necessary concepts are introduced and explained • Unifies the descriptive and normative strands of growth theory providing fresh insights, including a proof of Adam Smith's 'Invisible Hand' conjecture • Includes end-of-chapter review questions allowing readers to monitor their understanding of the material

### Contents

Introduction; Part I. Positive Growth Theory: 1. The welfare of society and economic growth; 2. The growth process; 3. A production function of central importance; 4. The CES production function as a general mean (in collaboration with Robert M. Solow); 5. Capital-labour substitution and economic growth (in collaboration with Robert M. Solow); 6. The long-term growth rate as a random variable, with an application to the U.S. Economy; Part II. Optimal Growth Theory: 7. Optimal growth theory: an introduction to the calculus of variations; 8. Other major tools for optimal growth theory: the Pontryagin Maximum Principle and the Dorfmanian; 9. First applications to optimal growth; 10. Optimal growth and the optimal savings rate; Part III. A Unified Approach: 11. Preliminaries: interest rates and capital valuation; 12. From arbitrage to equilibrium; 13. Optimal savings: a general approach; 14. Problems in growth: common traits between planned economies and poor countries; 15. From Ibn Khaldun to Adam Smith, and a proof of Smith's conjecture; 16. In conclusion: on the convergence of ideas and values through civilizations; Further readings, and data on growth; Index.

### Reviews

'Olivier de La Grandville has written a sparkling, wide-ranging and provocative analysis of economic growth models. Noteworthy is his analysis of the difficulties in using optimal control theory and his development of an alternative approach more closely related to Solow's original growth model. He strongly emphasizes the importance of the elasticity of substitution. The work is marked by a large number of novel specific analytic results which will be of wide use.' Ken Arrow, Winner of the Nobel Prize in Economics, 1972

'Olivier de la Grandville has written a remarkably original book on economic growth, questioning the suitability of the Ramsey utility function in growth modeling, and extending Adam Smith's Invisible Hands to a dynamic setting. It is provocative and deeply inspiring.' H. M. Leung, Singapore Management University

'This thought-provoking book raises some fundamental questions about our future: How does competition guarantee an efficient economic growth process? What is the effect of the elasticity of substitution between capital and labour on society's optimal saving rate? Should the focus of economic policy be shifted from promoting technological progress to facilitating substitution between inputs in the production process? The author combines mathematical rigour with economic intuition to answer these topical - and possibly fateful - questions whose correct answer may well decide the future course of human development.' E. Juerg Weber, University of Western Australia

'This extremely well-written book is great news for all students of neoclassical and optimal growth theories. It contains a comprehensive, systematic and integrated presentation of the fundamentals as well as some original results, new interpretations and insightful applications. Professor de La Grandville succeeds incredibly well where many others have failed, namely in the tightrope exercise of reconciling crystal clear exposition of key concepts and developments with uncompromising yet self-contained mathematical rigour. The book has many other laudable features, not the least being the author's relentless effort to provide the economic intuition behind mathematically-obtained elegant results.' Milad Zarin, Professor of Economics, University of Neuchâtel

'Economic Growth: A Unified Approach separates and fuses the normative and positive aspects of growth theory in a refreshing, distinctive manner. Mathematical steps are rigorously documented, key results presented graphically and a meticulous set of problem and solutions is included. Readers will not only grasp the hard science involved but doubtless share the author's infectious enthusiasm. However, this volume transcends mere text book. From uncovering the importance of the 'normalized' production function, the promotion of the Dorfmanian and formalization of Smith's Conjecture, to challenging traditional utility analysis, this book bursts with new perspectives. It represents a significant contribution.' Peter McAdam, Research Department, European Central Bank

'This book contains a very clear and profound treatment of both positive and normative growth theory, and of their unification. But if the merits of the book were only these, it would be just another excellent textbook on growth theory. What puts the book in a category of its own is the number of real goodies that it contains. These range from the Dorfmanian to the problems raised by the use of utility functions in optimal growth theory to the formal proof of the famous 'invisible hand' conjecture by Adam Smith, to cite only a few. This is an important book that every economist should read.' Giancarlo Gandolfo, Professor of International Economics, Sapienza University of Rome