Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5054908 | Economic Modelling | 2013 | 11 Pages |
One of the key differences between exogenous and endogenous growth models is that a transitory shock to investment share exhibits different long-run effects on per-capita output. Exploring this difference, the present paper evaluates the empirical relevance of the two growth models for the G-7 countries. The underlying shocks are identified by an application of a dynamic factor model. Results show that a transitory shock to investment share permanently increases per-capita output in four countries, offering support to the endogenous growth model. This shock also contributes considerably to accounting for the long-run variability of per-capita output. Overall, the endogenous model is found to be empirically more plausible than previous time series studies suggest.
⺠We test the relevancy of exogenous and endogenous growth models for the G7 countries. ⺠The underlying shocks are identified by applying a dynamic factor model. ⺠The endogenous model is found to be more plausible than previous studies suggest.