Endogenous Savings and Growth

The first section of this chapter presents the Ramsey-Cass-Koopmans growth model, in which consumption decision is based on the intertemporal allocation of resources. The second section presents the overlapping generations growth model, in which consumption is also an endogenous variable. The third section introduces endogenous growth models showing, in a very simple way, how each model solves the issue of endogenous growth. The fourth section introduces the AK model, in which the economy’s growth rate is an endogenous variable arising from the fact that capital has no decreasing returns. The fifth section covers the Acemoglu-Ventura AK model of an open economy with no capital mobility but with goods and services mobility, in which a relative price—the terms of trade—affects the economy’s growth rate. The sixth section presents a model with increasing returns. The seventh section introduces Lucas’s human capital model. The eighth section presents Romer’s model of innovation with new varieties of inputs, and the ninth section presents Aghion and Howitt’s Schumpeterian innovation model with creative destruction.