ENDOGENOUS GROWTH AND THE PROCYCLICAL BEHAVIOR OF PRODUCTIVITY

In this paper a model with endogenous growth is used to explain the procyclical behaviour of productivity. Periods when the marginal return to goods production is high are associated with low levels of human capital formation and other investment-like activities. In particular, the model successfully explains the surges in productivity exhibited in the UK during wartime and the apparently permanent effect of the level of defence spending on the growth of total factor productivity. © 1990.