Deterministic and Stochastic Three-Sector Dynamic Growth Model with Endogenous Labor Supply

25 Pages Posted: 5 Feb 2012 Last revised: 12 Nov 2012

See all articles by Loretti Dobrescu

Loretti Dobrescu

University of New South Wales, School of Economics

Mihaela Neamtu

West University of Timisoara - Department of Economic, Informatics and Statistics

Dumitru Opris

West University of Timisoara

Date Written: November 19, 2011

Abstract

This paper explores the stability of the stationary state for a dynamic growth model with wealth and human capital accumulation. Knowledge is created through research and learning-by-doing, while the time allocation between labor and leisure is endogenized. We analyze the model in both its deterministic and stochastic versions. First, we describe the deterministic model and analyze the stationary state. Second, using the stationary state, we define the stochastic perturbation and study the mean and squared mean values of the system states for the linearized model. Third, we prove that for certain parameters, the stationary state is asymptotically stable both in the deterministic and the stochastic model. Finally, we perform the comparative dynamic analysis for the propensities to save and to enjoy leisure, the tax rates used to finance research, and the knowledge utilization efficiency.

Keywords: labor, human capital, capital accumulation, economic growth

JEL Classification: C62, E22, O41

Suggested Citation

Dobrescu, Loretti Isabella and Neamtu, Mihaela and Opris, Dumitru, Deterministic and Stochastic Three-Sector Dynamic Growth Model with Endogenous Labor Supply (November 19, 2011). UNSW Australian School of Business Research Paper No. 2012-10. Available at SSRN: https://ssrn.com/abstract=1987869 or http://dx.doi.org/10.2139/ssrn.1987869

Loretti Isabella Dobrescu (Contact Author)

University of New South Wales, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Mihaela Neamtu

West University of Timisoara - Department of Economic, Informatics and Statistics ( email )

Bd. Vasile Parvan nr.4
Timisoara 300223, Timis 330023
Romania

Dumitru Opris

West University of Timisoara ( email )

Bd. Vasile Parvan nr.4
Timisoara 300223, Timis 330023
Romania

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