Analitical Derivation of the Cobb-Douglas Function based on the Golden Rule of Capital Accumulation

Yashin, Pete (2008): Analitical Derivation of the Cobb-Douglas Function based on the Golden Rule of Capital Accumulation. Unpublished.

Abstract

In this paper, the neoclassical model is extended for the general case of economic growth, which can be represented as the sum of cyclical and growth components. If the general formulation of the golden rule of capital accumulation is satisfied (the savings rate is equal to the capital income share), the production function takes the form of the Cobb-Douglas function. This function governs the economic growth both when the economy is growing along an equilibrium path and when the economy is departing from it (the correlation coefficient between U.S. GDP changes and calculated ones is equal to 0.91). When economy fluctuations are averaged along an equilibrium path, the Cobb-Douglas function reduces to condition, which is similar to Harrod-Domar one. The level of technology may be reasonably considered to express in terms of the wage level.

• Item Type: MPRA Paper
• Language: English
• Keywords: neoclassical growth model; golden rula of capital accumulation; Cobb-Douglas function; Harrod-Domar condition
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E13 - Neoclassical

References

[1] R. F. Harrod, An Essay on Dynamic Theory, Economic J. 49 (1939), 14 – 33.

[2] E. D. Domar, Capital Expansion, Rate of Growth, and Employment, Econometrica 14 (1946), 137 – 147.

[3] R. M. Solow, A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics 70 (1956), 65–94.

[4] E. S. Phelps, The Golden Rule of Accumulation: A Fable for Growthmen, American Economic Review 51 (1961), 638-643.

[5] US General Accounting Office, 1987. International Trade the U.S. Trade Deficit: Causes and Policy Options for Solution. Report to Congressional Requesters, (April 1987).

[6] R. J. Hodrick, E. C. Prescott, Postwar U.S. Business Cycles: An Empirical Investigation, J. of Money, Credit and Banking 29 (1997), 1-16.

[7] T. F. Cooley, E. C. Prescott, Economic Growth and Business Cycles, In: Frontiers of Business Cycle Research, ed. Cooley T., Princeton, N.J.: Princeton University Press, 1995, 1–38.

[8] P. Gomme, F. E. Kydland, P. Rupert, Home Production Meets Time to Build, J. of Political Economy 109 (2001), 1115-1131.