Stability and mean growth rate of stochastic Solow model driven by jump–diffusion process

Abstract

This work focuses on the stability and mean growth rate of stochastic Solow growth model. The uncertainty in our model is generated by the technology part, which includes fluctuations on the technological accumulation and jump growth from new inventions and ideas. We introduce the criteria of stability, including stochastic stability and exponential stability, and the sufficient condition for the existence of balanced growth path. Furthermore, we precisely calculate the higher-order moment of effective capital–labor ratio and the mean growth rate of major economic quantities on the balanced growth path. Our analysis sheds light on the impact of various stochastic effects on economic quantities and provides insight into the stability of the stochastic Solow model with technological uncertainty.