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On the Stability of the Balanced Growth Path in the Solow Model
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 119 (1999), Iss. 1 : pp. 45–55
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Rauch, Bernhard
Abstract
In the Solow growth model, capital intensity and per capita income converge to their equilibrium values. This note shows that nevertheless the difference between the balanced and the actual growth path of the absolute values generally diverges to infinity. The paper shows how this divergence is related to the convergence rate for the per capita values and describes the conditions under which the result occurs if the saving decision is endogenous. An implication of the result is demonstrated in an extension of the model containing environmental pollution.