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Economic Quarterly

Fall 2004

(Un)Balanced Growth

Andreas Hornstein

Most economic theory on long-run growth is organized around the concept of balanced growth. On a balanced growth path, all economic variables grow at constant but possibly different rates. The concept of balanced growth paths is usually motivated by the "stylized facts" of growth, which state that for most industrialized countries, certain ratios, in particular the capital-output ratio, have been remarkably stable over long time periods. A review of the evidence on the stability of capital-output ratios for the United States economy finds some support for the "stylized facts," at the aggregate level, but no support for them regarding the equipment and structures components of the aggregate capital stock separately.

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