Growth Models and the Escape from the Low-Level Equilibrium Trap: The Case of Japan

Abstract

Our aggregate growth modelsl are troublesome tools for analysis of economic growth. If economic growth is defined as an increase in per capita income these models do not explain growth. So long as the parameters stay fixed they preclude growth. Given the parameters of the model, an equilibrium rate of growth of national income and an equilibrium level of per capita income can be deduced. Though these models explain growth of total national income, growth of per capita income can be explained only as movements toward a new and higher equilibrium resulting from changes in the parameters of the model: production functions, institutions, etc. But these changes are outside the model. 2 The model does not explain them. It explains only their effect.