• Delano Segundo Villanueva Bangko Sentral ng Pilipinas
Keywords: Pasinetti mode, Endogenous growth, Growth policies


In a two-class growth model of Pasinetti (1962), there is no financial intermediary that mobilizes bank deposits to be lent to the capitalist class for physical investment. The absence of a capital market also precludes workers from buying capitalists’ new issues of stocks and bonds to finance investment. Thus, the equilibrium rate of return to capital is independent of the saving rate of the working class—what Samuelson and Modigliani (1966) referred to as the Pasinetti paradox. In this paper’s modified Pasinetti framework with endogenous growth, the equilibrium rate of return to capital is shown to be a function of all structural parameters, including both saving rates of the capitalist and working classes. Additionally, the modified model explains the recessionary dynamics of the 2007/2008 global and regional financial crises. Implications for growth policies are drawn.


Download data is not yet available.


Arrow, K. (1962). The Economic Implications of Learning by Doing. Review of Economic Studies, 29, 155-73.

Atje, R. & B. Jovanovic (1993). Stock Markets and Development. European Economic Review, 37, 632-640.

Conlisk, J. (1967). A Modified Neoclassical Growth Model with Endogenous Technical Change. Southern Economic Journal, 34, 199-208.

Conlisk, J. (1989). An Aggregate Model of Technical Change. Quarterly Journal of Economics, 104, 787-821.

Conlisk, J. (1996). Why Bounded Rationality. Journal of Economic Literature, 34, 669- 700.

Conlisk, J. (2004). Herbert Simon as Friend to Economists Out of Fashion, Models of Man: Essays in Memory of Herbert A. Simon. Edited by Mie Augier and James G. March. MIT Press, Cambridge, MA.

Inada, K.-I. (1963). On a Two-Sector Model of Economic Growth: Comments and Generalization. Review of Economic Studies, 30, 119-127.

Knight, M., Loayza, N., & Villanueva, D. (1993). Testing the Neoclassical Theory of Economic Growth. IMF Staff Papers, 40, 512-541.

Mankiw, N., D. Romer, & D. Weil (1992). A Contribution to the Empirics of Economic Growth. Quarterly Journal of Economics, 107, 407-437.

Otani, I. & D. Villanueva (1989). Theoretical Aspects of Growth in Developing Countries: External Debt Dynamics and the Role of Human Capital. IMF Staff Papers, 36, 307–342.

Otani, I. & D. Villanueva (1990). Long-term Growth in Developing Countries and Its Determinants: An Empirical Analysis. World Development, 18, 769–783.

Pasinetti, L. (1962). Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth. Review of Economic Studies, 29, 267-79.

Ramsey, F. (1928). A Mathematical Theory of Saving. The Economic Journal, 38, 543-59.

Samuelson, P. and F. Modigliani (1966). The Pasinetti Paradox in Neoclassical and More General Models. Review of Economic Studies, 33, 269-301.

Solow, R. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, 65-94.

Swan, T. (1956). Economic Growth and Capital Accumulation. Economic Record, 32, 334-362.

Villanueva, D. (1994). Openness, Human Development, and Fiscal Policies: Effects on Economic Growth and Speed of Adjustment. IMF Staff Papers, 41, 1-29.

Villanueva, D. & R. Mariano (2007). External Debt, Adjustment, and Growth. Fiscal Policy Management in East Asia, T. Ito and A. Rose (eds). NBER, University of Chicago Press, Chicago, Illinois.

Villanueva, D. (2008). Macroeconomic Policies for Stable Growth. World Scientific Publishing, Singapore.

Villanueva, D. (2020). A Modified Neoclassical Growth Model with Endogenous Labor Participation. Bulletin of Monetary Economics and Banking, 23, 83-100.

Villanueva, D. & R. Mariano (2021). Optimal Saving and Sustainable Foreign Debt. The Philippine Review of Economics, 57, 170-199.

PlumX Metrics

How to Cite
Villanueva, D. (2022). FINANCE AND ENDOGENOUS GROWTH. Buletin Ekonomi Moneter Dan Perbankan, 25(1), 55-72.