TITLE:
A Note on GDP-versus Consumption-Maximizing Growth
AUTHORS:
Yong He
KEYWORDS:
GDP-Maximizing Growth, Aversion to Under-Consumption, Transition between Steady States, Sustainability
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.4,
August
24,
2020
ABSTRACT: Sparked by Baumol’s revenue-versus profit-maximizing
models of the firm, this note shows that if a nation seeks GDP-maximizing
growth with capital expansion as driving force, the model could work only under
the assumption that the consumers’ aversion to under-consumption, an
unavoidable consequence of over-investment, remains constant. Otherwise, it has
to decelerate growth and ultimately converges to the neoclassical growth model
with consumption optimality. The empirical evidence, especially the
sustainability of the Chinese model, is examined to explore the extent to which
the model captures the real world.