Production Lags And Growth Dynamics In An Overlapping Generations Endogenous Growth Model

Abstract

This paper analyzes growth dynamics in an endogenous growth overlapping generations model characterized by production lags in the firm-specific and average economy-wide capital inputs, with the growth process being endogenized by allowing for a production externality. We show that endogenous convergent fluctuations emerge, with the convergence being faster for higher values of the marginal product of labor, given the initial value of the gross growth rate - a result, otherwise impossible, if the production is a function of contemporaneous capital stock. Finally, when production is a function of lagged labor, as well as lagged capital inputs, steady-state is infeasible.