The issue of dynamic efficiency is central to analyses of capital accumulation and
economic growth. Yet the question of what characteristics should be examined to determine
whether actual economies are dynamically efficient is unresolved. This paper develops
a criterion for determining whether an economy is dynamically efficient. The criterion,
which holds for economies in which technological progress and population growth are
stochastic, involves a comparison of the cash flows generated by capital with the
level of investment. Its application to the United States economy and the economies
of other major OECD nations suggests that they are dynamically efficient.