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A New View of Economic Growth$
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Maurice FitzGerald Scott

Print publication date: 1991

Print ISBN-13: 9780198287421

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198287429.001.0001

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The Determinants of the Share of Investment in Output and the Complete Growth Model

The Determinants of the Share of Investment in Output and the Complete Growth Model

Chapter:
(p.216) 8 The Determinants of the Share of Investment in Output and the Complete Growth Model
Source:
A New View of Economic Growth
Author(s):

Maurice FitzGerald Scott

Publisher:
Oxford University Press
DOI:10.1093/0198287429.003.0008

Equations to determine the rate of investment are needed to close the model of Ch. 6. There seems to be no generally accepted theory of long‐run saving and investment. The capital stock adjustment principle makes investment respond to output, whereas we require causation to flow in the opposite direction. A simple Ramsey approach is adopted, faute de mieux, in which a utility function determines the rate of discount, which is equated to the marginal rate of return. There are then eight equations to determine eight endogenous variables.

Keywords:   capital stock adjustment principle, investment, long‐run saving, Ramsey, rate of discount, rate of return, utility function

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