I’m reviewing equity and came across this in reading 37. “For countries generating neoclassical growth that results from increases in labor and capital (such as developing countries), an increase in the savings rate will increase the level of dividends (b/c the level of GDP increases) but not the long run growth rate in dividends (b/c the long run growth rate in GDP doesn’t change).” What does it mean that the level will increase but the growth rate doesn’t? Does it mean there is constant growth?
I came across the same thing today – and kind of figured that this might be a upper limit of GDP growth rate on the dividends.
The Neoclassical theory assumes growth in GDP is driven by technological innovation, not changes in labor or capital. In addition, technological innovation has to be at a constant rate. This is what I got out of the econ reading, it should be simlar in the equity section.
remember in neoclassical theory over the long run, you stagnate your GDP.