The AK Model

We discuss the AK model. This utilises "learning by doing" in order to allow a balanced growth path with increasing returns to scale in the aggregate production function. This arises through individual firm choices generating a positive externality for the other firms in the economy.

This model is a model of endogenous technological change, and is named the AK model due to this being the form of the production function when we make some assumptions about the parameters in the model.

I believe I gave the wrong year of Romer's paper in the video. See Romer (1986)
Romer, Paul M. (1986): “Increasing Returns and Long Run Growth,” Journal of Political Economy, 94, 1002–37.

Check out the Solow Growth Model playlist for past videos to get up to speed with the assumptions and key equations.

Robert M. Solow, A Contribution to the Theory of Economic Growth, The Quarterly Journal of Economics, Volume 70, Issue 1, February 1956, Pages 65–94

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