The modern approach to growth, often called “new growth theory,"really consists of two quite distinct theories.
One is the so-called AK approach, which emphasizes the role of capital accumulation. It has been known since the work of Solow (1956) that long-run growth through continuing accumulation of capital is only possible if the aggregate production function is not too concave in capital.
The AK model is named after a production function which is linear in capital—y = Ak—where k represents capital and A is a constant.The alternative to the AK model is the Schumpeterian model, which emphasizes the role of R&D and productivity-enhancing investments, more generally, in the growth process. Growth persists in this model because it is always rewarding to come up with a new way of doing things, which generates productivity growth.
The goal of this chapter is to review what these two canonical views of growth tell us about how volatility affects growth.
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Source:
Aghion P., Banerjee A.. Volatility and Growth. Oxford, Oxford University Press,2005. - 159p.. 2005
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