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Appears in Collections:Economics Working Papers
Peer Review Status: Refereed
Title: The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth
Author(s): Greasley, David
Hanley, Nicholas
McLaughlin, Eoin
Oxley, Les
Citation: Greasley D, Hanley N, McLaughlin E & Oxley L (2014) The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth. Stirling Economics Discussion Paper, 2014-08.
Keywords: inter-temporal utility maximisation
modern growth theory
comprehensive wealth
JEL Code(s): E21: Macroeconomics: Consumption; Saving; Wealth
E22: Investment; Capital; Intangible Capital; Capacity
C61: Optimization Techniques; Programming Models; Dynamic Analysis
Issue Date: 31-Aug-2014
Date Deposited: 28-Aug-2014
Series/Report no.: Stirling Economics Discussion Paper, 2014-08
Abstract: Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare-maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870-2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country's wealth or capital is taken into account.
Type: Working Paper
Affiliation: University of Edinburgh
University of St Andrews
University of Waikato

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