Land and Economic Growth

Abstract

This paper incorporates land in a neoclassical model of economic growth. Saving and investment functions are modified due to the existence of land and these modifications yield some interesting results concerning the rate of capital accumulation: First, the maximum consumption path is unattainable; and second, the rate of capital accumulation depends negatively on both the equilibrium rate of growth and the relative share of land in national income. The latter result is a quantification of an effect claimed by many observers to characterize certain underdeveloped countries; namely, that saving motives are satisfied by land holdings (and the increase in real land prices) rather than by capital accumulation. Equilibrium in neoclassical growth models with two assets was first examined by James Tobin (1965). Most of the subsequent work on two asset models has continued to use Tobin's assumption that the asset other than capital is government debt and that its importance for equilibrium growth obtains solely from its role

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