Created 3/10/1998
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The Steady-State Capital-Output Ratio

J. Bradford DeLong

The proportional rate of growth of the capital stock depends inversely on the capital-output ratio: the more capital there is for each unit of output, the slower will be the proportional rate at which the capital stock grows. By contrast, the proportional rate of growth of production is simply n+g: the rate of growth of the labor force plus the rate of growth of output per worker.

If the capital stock is growing faster than output, the capital-output ratio rises; if it is growing slower, the capital-output ratio falls. In either case the capital-output ratio heads for an then remains at its steady-state value. You can calculate the steady-state value by dividing the economy's savings rate by the sum of the (a) labor force growth, (b) output per worker growth, and (c) capital stock depreciation rates.

Convergence to the Steady State   Technological Change  

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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