bu ali sina universityJournal of Applied Economics Studies in Iran2322-253093320200320Calculate the Steady-State Production Trajectory for Iranian Economy
(An Approach of endogenous Growth Model With CES Production Function)Calculate the Steady-State Production Trajectory for Iranian Economy
(An Approach of endogenous Growth Model With CES Production Function)141171331110.22084/aes.2020.20372.2959FAAli HosseinOstadzadAssistant Professor of Economics, Larestan Higher Education Complex0000-0002-2411-8340Journal Article20191104The Cobb Douglas production function was used in most economic growth models as production technology (Which has elasticity of substitution equal one). In this research, the Ramsy growth model is extended with CES production function (production function with constant elasticity of substitution, not one). After solving the optimal control problem, the optimal trajectory of economic variables (production and capital) is calculated in steady state for Iranian economy. The results show that production and capital are significantly lower than the steady state level. One of the innovations of this paper is to investigate the effect of elasticity of substitution on optimal trajectory of economic variables as well as economic growth in steady state. The results indicate the elasticity of substitution will have a negative impact on the growth in steady state. Theoretical results of the research show that assuming elasticity of substitution equal one, the technology growth rate is not significant effect on the economic growth rate in the long run. But given elasticity of substitution below one, the steady growth rate of production will depend on technology and population growth rates. Therefore, specifically considering the CES production function rather than the Cob Douglas in the growth model would have quite different results. Also in this research was calculated the economic growth rate for Iranian economies equal 6.9 percent. Other results show that the production realized for Iran had not been in steady state trajectory and Iranian economy is in deep recession in 2018.we show that the reason of this recession is decreasing of investment.The Cobb Douglas production function was used in most economic growth models as production technology (Which has elasticity of substitution equal one). In this research, the Ramsy growth model is extended with CES production function (production function with constant elasticity of substitution, not one). After solving the optimal control problem, the optimal trajectory of economic variables (production and capital) is calculated in steady state for Iranian economy. The results show that production and capital are significantly lower than the steady state level. One of the innovations of this paper is to investigate the effect of elasticity of substitution on optimal trajectory of economic variables as well as economic growth in steady state. The results indicate the elasticity of substitution will have a negative impact on the growth in steady state. Theoretical results of the research show that assuming elasticity of substitution equal one, the technology growth rate is not significant effect on the economic growth rate in the long run. But given elasticity of substitution below one, the steady growth rate of production will depend on technology and population growth rates. Therefore, specifically considering the CES production function rather than the Cob Douglas in the growth model would have quite different results. Also in this research was calculated the economic growth rate for Iranian economies equal 6.9 percent. Other results show that the production realized for Iran had not been in steady state trajectory and Iranian economy is in deep recession in 2018.we show that the reason of this recession is decreasing of investment.https://aes.basu.ac.ir/article_3311_049b99ade339bd0dd2ee65f1c342dd40.pdf