On the Existence of Balanced Growth Equilibrium

Abstract

The authors characterize the class of dynamic models that allow for the most commonly used types of sustained economic growth (balanced and asymptotically balanced). They show that, under a constant returns to scale technology, (asymptotically) constant discount rate and (asymptotically) constant elasticity of marginal felicity are not only necessary but also sufficient conditions for the existence of a(n) (asymptotically) balanced growth equilibrium path. The authors provide examples of recursive utility models that accept a(n) (asymptotically) balanced growth equilibrium and discuss their implications on cross-country differences in growth rates as well as on savings behavior and wealth distribution. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.