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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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Orthodox Growth Theories

Orthodox Growth Theories

Chapter:
(p.69) 3 Orthodox Growth Theories
Source:
A New View of Economic Growth
Author(s):

Maurice FitzGerald Scott

Publisher:
Oxford University Press
DOI:10.1093/0198287429.003.0003

Orthodox growth theories generally assume a neoclassical production function, with growth of output explained by increases in the capital stock or employment, or by shifts in the function attributed to exogenous technical progress that is independent of investment. But increases in the capital stock are measured by gross investment minus either scrapping or depreciation, and in competitive conditions neither of these will reduce output, although causing big reductions in the stock. Consequently, the role of investment in explaining growth has been very much understated, leading to the famous residual, attributed to exogenous technical progress. Orthodox vintage theories give essentially the same result, and all are mistaken as there is no residual. In reality, technical progress cannot be separated from investment, nor is it independant of it.

Keywords:   capital stock, depreciation, exogenous technical progress, orthodox theories, production function, residual, vintage theories

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