AK Model
The
AK model of economic growth is an endogenous growth model used in the theory of
economic growth, a subfield of modern macroeconomics. In the 1980s it became
progressively clearer that the standard neoclassical exogenous growth models
were theoretically unsatisfactory as tools to explore long run growth, as these
models predicted economies without technological change and thus they would
eventually converge to a steady state, with zero per capita growth. The
neo-classical approaches to economic growth were largely considered to be
unsatisfactory due to several inherent flaws. These models view improvements in
total factor productivity (technological progress) to be the ultimate source of
growth in output per worker, but they do not provide an explanation as to where
these improvements come from. In the language of economists, long-run growth is
determined by something that is exogenous in the model. Diminishing returns to
the accumulation of capital, which plays a crucial role in li…
