Endogenous Growth Models

The AK model, introduced by Rebelo [74], is characterized by a constant returns to scale technology, linear in physical capital with A representing the constant average and marginal productivity of capital, and Kt the aggregate stock of capital. As we saw in Chap. 2, aggregate constant returns to scale in the cumulative inputs is a necessary condition for endogenous growth. This assumption is a violation of the Inada condition \({\rm lim}_{K_{t}\rightarrow\infty}F^{\prime}(K_{t}) = 0,\) which is assumed to hold in neoclassical growth models under decreasing returns to scale.