An Empirical Study of Goodwin Growth Models

Abstract

Three dynamic macroeconomic models have been econometrically tested for ten OECD countries. One of them is a classic model developed by R.M. Goodwin on the lines of Lotka-Volterra predator prey model of mathematical biology, the second is an extension developed by Desai incorporating inflation and the third is a model developed by van der Ploeg incorporating a generalized production function. We start with estimating parameters and equilibrium of the Goodwin growth model, we then discuss data issues and reasons of poor estimates in a well-known paper by Harvie. Next we analyze the impact of inflation on the bargaining power of the agents and on the equilibrium through Desai's model. Finally, we estimate CES production function and equilibrium estimates of the van der Ploeg model. We find that the estimates of the van der Ploeg model are within the bounds of observed values for 6 out of 10 countries examined. Moreover, the error of the model is much less than suggested by previous studies. This implication is important and encouraging for further econometric estimation of generalized dynamical models in macroeconomics