Balanced growth equilibrium

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Definition

A balanced growth equilibrium refers to a situation where an economy has settled into a long-run growth path where only its overall size is changing, and its composition remains constant. Explicitly:

  • Measures of the total quantity of inputs and outputs (such as capital stock, GDP, effective labor supply) grow exponentially (i.e., they have a constant exponential growth rate).
  • Measures of ratios between quantities of inputs and outputs (such as savings rate, capital intensity) remain constant.

The term balanced growth model may be used for a model that has a balanced growth equilibrium, or somewhat more narrowly for a model that asymptotically converges to a balanced growth equilibrium from all (or most) initial conditions, including unbalanced ones.