Stochastic Stability of Endogenous Growth: Theory and Applications

Raouf Boucekkine (1, 2) , Patrick Pintus (2) , Benteng Zou (3)

1 IUF - Institut universitaire de France
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
3 CREA - Center for Research in Economic Analysis

We examine the issue of stability of stochastic endogenous growth. First, stochastic stability concepts are introduced and applied to stochastic linear homogenous differential equations to which several stochastic endogenous growth models reduce. Second, we apply the mathematical theory to two models, starting with the stochastic AK model. It's shown that in this case exponential balanced paths, which characterize optimal trajectories in the absence of uncertainty, are not robust to uncertainty: the economy may almost surely collapse at exponential speed even though productivity is initially arbitrarily high. Finally, we revisit the seminal global diversification endogenous growth model (Obstfeld, 1994): taking into account stochastic stability calls for a redefinition of the mean growth concept, which leads to revisit the established wisdom on the growth effect of global diversification.

Mots clés: endogenous growth; stochastic growth; stochastic stability; AK model; global diversification

Domaines: Economies et finances

Raouf Boucekkine, Patrick Pintus, Benteng Zou. Stochastic Stability of Endogenous Growth: Theory and Applications. 2015. ⟨halshs-01181505⟩