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Transitional Dynamics in Two-Sector Models of Endogenous Growth

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Author Info
Mulligan, Casey B
Sala-i-Martin, Xavier

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Abstract

We analyze the steady state and transitional dynamics of two-sector models of endogenous growth. The necessary conditions for endogenous growth imply that transitions depend only on a measure of the imbalance between the two sectors such as the ratio of the two capital stocks. We use the Time-Elimination method to analyze the transitional dynamics. Three main economic forces drive the transition: a Solow effect, a consumption smoothing effect, and a relative wage effect. For plausible parameterizations the consumption smoothing effect tends to dominate the relative wage effect; transition from relatively low levels of physical capital is accomplished through higher work effort rather than higher savings. Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 108 (1993)
Issue (Month): 3 (August)
Pages: 739-73
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Handle: RePEc:tpr:qjecon:v:108:y:1993:i:3:p:739-73

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. repec:fth:harver:1532 is not listed on IDEAS
  2. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August. [Downloadable!] (restricted)
  3. Christophe Chamley, 1991. "Externalities and Dynamics in Models of "Learning or Doing"," Boston University - Institute for Economic Development 17, Boston University, Institute for Economic Development.
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  4. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  6. Casey B. Mulligan & Xavier Sala-i-Martin, 1991. "A Note on the Time-Elimination Method For Solving Recursive Dynamic Economic Models," NBER Technical Working Papers 0116, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Robert J. Barro, 1991. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Faig, Miquel, 1995. "A simple economy with human capital: Transitional dynamics, technology shocks, and fiscal policies," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 421-446. [Downloadable!] (restricted)
  9. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April. [Downloadable!] (restricted)
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