Indeterminacy in a two-sector endogenous growth model with productive government spending
We construct a two-sector endogenous growth model in which productive government spending is essential for sustaining an economy's long-run growth. It is shown that, like the original one-sector [Barro, R.J., 1990. Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103-125] model, the balanced growth path (BGP) equilibrium is unique under some conditions. Unlike Barro (1990), however, our two-sector framework exhibits transitional dynamics. In fact, when the intertemporal elasticity of substitution for consumption is large, around the BGP equilibrium, there is a continuum of equilibrium paths whose growth rates commonly converge to a balanced growth rate. That is, the BGP equilibrium is indeterminate.
Year of publication: |
2008
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Authors: | Hu, Yunfang ; Ohdoi, Ryoji ; Shimomura, Koji |
Published in: |
Journal of Macroeconomics. - Elsevier, ISSN 0164-0704. - Vol. 30.2008, 3, p. 1104-1123
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Publisher: |
Elsevier |
Saved in:
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