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On the system-theoretical foundations of non-economic parameter constancy assumptions in economic growth modeling

Stijepic, Denis (2017): On the system-theoretical foundations of non-economic parameter constancy assumptions in economic growth modeling.

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Abstract

In general, positive/quantitative growth models assume that (some of) the model parameters that are determined in non-economic systems are exogenous and constant. Such non-economic parameter constancy assumptions (abbr. ‘NEPCAs’) are not necessarily consistent with the empirical evidence on significant cross-system interactions and, in particular, long-run interactions between the economic system and the non-economic systems (e.g. socio-cultural, political, and ecological system). We derive the system-theoretical/mathematical conditions under which NEPCAs are good approximations of cross-system interactions in economic growth models: we (a) discuss the standard types of dynamic equilibrium and the problems that arise when using them to justify NEPCAs in economic long-run models (in presence of cross-system interactions), (b) formulate an equilibrium type (a ‘stable partial dynamic equilibrium’) that solves these problems, and (c) demonstrate the applicability of this equilibrium type as a foundation of the NEPCAs used in the AK growth model. Finally, we discuss some topics for further research.

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