Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5067625 | European Economic Review | 2008 | 21 Pages |
Abstract
This paper exploits a natural experiment, the large destruction of capital in continental Europe during World War II, to characterize the transitional dynamics of an economy that begins with a capital stock below its steady state level. We use these regularities as a benchmark to discriminate among competing growth specifications. A model that combines non-separabilities in preferences with a technology that restricts the degree of substitutability between inputs outperforms the widely used AK and Cobb-Douglas specifications with time-separable preferences. Our results suggest that policy evaluations based in growth models that overlook non-separabilities in preferences or impose strong restrictions on the technological structure might be grossly misleading.
Related Topics
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Authors
Francisco Alvarez-Cuadrado,