A THEORETICAL GROWTH MODEL FOR IRELAND
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Figure 2: Dynamics
Sources of Growth
Since we are abstracting from long-run growth in GDP per capita, we can
think of all growth in this model as ‘catch-up’, or the convergence that occurs
as GDP moves to a higher steady state. In a model where we properly
accounted for steady state growth in GDP per capita, the interpretation would
be that GDP grows temporarily at a rate higher than the steady state growth
rate.
The steady state can be illustrated in Figure 3. The KK schedule describes
the capital market equilibrium as given by the steady state equation:
( r * + Φ( K ) + δ) = AFk(K, L )
Figure 3: The Steady State
