New study challenges traditional economic assumptions, paving way for more accurate models.
Current production processes often have non-constant returns to scale, which means that increasing inputs doesn't always lead to proportional increases in outputs. While this concept is widely accepted in theory, it hasn't been effectively applied in multi-sector modeling. This is because the constant returns to scale assumption, like the Leontief assumptions, are more popular and easier to work with. However, these assumptions can lead to the mistaken belief that dynamic multi-sector models are highly unstable when they deviate from a balanced growth path.