This paper examines the relation between aggregate elasticity of substitution (AES) and capital accumulation (the AES-K relation) in a two-level, two-sector Solow growth model. There are two intermediate goods produced by capital and labor, while the final good is produced by combining the two...

By relaxing the restrictions commonly imposed on the magnitude of capital externalities in one-sector models with Cobb-Douglas technology, we find that indeterminacy can arise in the following two cases: (i) the felicity function is separable in consumption and leisure and there are negative...