Abstract:
This paper addresses the criticism that balanced growth models are inconsistent with the dynamics of structural change typical for the process of economic growth. Using a sectoral disaggregated version of a researchdriven growth model, we develop the concept of a generalized balanced growth path (GBGP). The GBGP preserves decisive properties of the balanced growth path analyzed in aggregated growth models. Along a GBGP, aggregate variables grow at constant rates (balanced growth) while disaggregated variables grow at non-constant rates. The aggregated model's implications for the behavior of aggregates are robust with respect to structural dynamics.