Key Equations:
Production function:
\(Y_i = K_i ^\alpha (A_i H_i)^{1 - \alpha}\)
Dynamics are the same as Solow. It may be interesting to compare estimations for growth accounting (the coefficient on the different variables across countries):
\(\ln(\frac{Y_t}{L_i}) = \frac{\alpha}{1 - \alpha} \ln (\frac{K_i}{Y_i}) + \ln (\frac{H_i}{L_i}) + \ln A_i\)
Endogenous Growth Models (R&D)
- Two-sector economy: 1 produces ideas and 2 produces output
- Sector 1 employs the share \(a_L\) of labor stock and 2 employs the remaining
- Sector 1 employs the share \(a_K\) of capital stock and 2 employs the remaining
- All saving is invested and the rate is exogenous, s