The underestimated virtues of the two-sector AK model

Arbeitspapier

We show that the two-sector version of the AK model proposed by Rebelo (1991) can be read as an endogenous growth extension of Greenwood, Hercowitz and Krusell (1997). By confining constant returns to capital to the investment goods sector, the model generates endogenously the secular downward trend of the relative price of equipment investment and the rising real investment rate observed in US NIPA data. Whereas Jones (1995) criticizes that the one-sector model fails to reconcile the empirical facts of trending real investment rates and stationary output growth, this incompatibility vanishes in the two-sector version. Finally, a simple technological shock can reproduce the ‘1974’ break in post World War II US data. Thus, AK-type endogenous growth models comply much better with empirical evidence, once they are augmented with a strictly concave consumption sector.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 0315

Classification and Topics

• Classification: Wirtschaft ; One, Two, and Multisector Growth Models ; Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
• Subject: AK model ; embodiment ; endogenous growth ; obsolescence ; Neue Wachstumstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Felbermayr, Gabriel ; Licandro, Omar
• Event: Veröffentlichung
• (who): Johannes Kepler University of Linz, Department of Economics
• (where): Linz
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/73277
• Last update: 10.03.2025, 11:42 AM CET