Reference : Stochastic stability of endogenous growth: Theory and applications
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Business & economic sciences : Macroeconomics & monetary economics
Stochastic stability of endogenous growth: Theory and applications
Boucekkine, Raouf mailto []
Pintus, Patrick mailto []
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
[en] stochastic growth ; Global diversification ; stochastic stability
[en] We examine the issue of stability of stochastic endogenous growth. First, stochastic
stability concepts are introduced and applied to stochastic linear homogenous differen-
tial equations to which several stochastic endogenous growth models reduce. Second, we
apply the mathematical theory to two models, starting with the stochastic AK model. It’s
shown that in this case exponential balanced paths, which characterize optimal trajectories
in the absence of uncertainty, are not robust to uncertainty: the economy may almost surely
collapse at exponential speed even though productivity is initially arbitrarily high. Finally,
we revisit the seminal global diversification endogenous growth model (Obstfeld, 1994):
taking into account stochastic stability calls for a redefinition of the mean growth concept,
which leads to revisit the established wisdom on the growth effect of global diversification.

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