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Can the AK Model Be Rescued? New Evidence from Unit Root Tests with Good Size and Power
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Diego Romero-Avila
Published/Copyright:
March 12, 2006
Abstract
In this paper we revisit the work of Jones (1995a) which provided strong evidence against the empirical validity of AK-type models that predict increasing output growth rates as a result of permanent movements in the physical investment rate. For that purpose, we employ recently developed unit root tests with good size and power which are also able to accommodate the existence of a structural break in the data for 26 OECD countries over the period 1950-1992. Overall, the analysis of deterministic and stochastic trends in output growth and investment rates (in total physical investment, and in producer durables and total structures) do not render broad support for the empirical validity of AK models. This result appears to be confirmed by the estimation of autoregressive distributed lag growth models which consistently render insignificant long-run coefficients on the investment rates.
Keywords: unit root tests; structural change; endogenous growth theory; neoclassical growth theory; physical investment rate
Published Online: 2006-03-12
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
unit root tests;
structural change;
endogenous growth theory;
neoclassical growth theory;
physical investment rate
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- Frontiers Article
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- Advances Article
- Monetary Policy and Uncertainty about the Natural Unemployment Rate: Brainard-Style Conservatism versus Experimental Activism
- Quantifying the Effects of the Demographic Transition in Developing Economies
- Inflation, Prices, and Information in Competitive Search
- Contributions Article
- Inflation Inertia in Sticky Information Models
- Job Separation Under Uncertainty and the Wage Distribution
- A Closed Form Solution to the Ramsey Model
- Convergence and Stability in U.S. Employment Rates
- What Does the Solow Model Tell Us about Economic Growth?
- Consumption and Health
- Capital Maintenance versus Technology Adoption Under Embodied Technical Progress
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