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A NOTE ON ECONOMIC GROWTH WITH SUBSISTENCE CONSUMPTION

Published online by Cambridge University Press:  26 October 2010

Holger Strulik
Holger Strulik*
Affiliation:
University of Hannover
*
Address correspondence to: Holger Strulik, Department of Economics, University of Hannover, Koenigsworther Platz 1, 30167 Hannover, Germany; e-mail: strulik@vwl.uni-hannover.de.
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Abstract

It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversial issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent of the size of subsistence needs. The model is thus more general and less subject to arbitrariness than might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.

Keywords

Economic GrowthSavingSubsistence Needs
Type
Notes
Information
Macroeconomic Dynamics , Volume 14 , Issue 5 , November 2010 , pp. 763 - 771
Copyright
Copyright © Cambridge University Press 2010

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