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Sector-Specific Externalities and Endogenous Growth under Social Constant Returns

  • Mino, Kazuo

By examining two-sector models of endogenous growth with physical and human capital, this paper demonstrates that indeterminacy of equilibrium may emerge even in the absence of social increasing returns. The first model we examine assumes that both final good and new human capital production sectors employ physical as well as human capital under social constant returns but private decreasing returns due to the presence of sector-specific externalities. It is shown that a small divergence between private and social factor intensity conditions generates indeterminacy of equilibrium rather easily even under constant returns. I addition, we show that introducing endogenous labor supply may enhance the possibility of indeterminacy. Some extensions and intuitive interpretation of the indeterminacy conditions are also presented.

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File URL: http://mpra.ub.uni-muenchen.de/16993/1/MPRA_paper_16993.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16993.

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Date of creation: Feb 2000
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Handle: RePEc:pra:mprapa:16993
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  1. Jang-Ting Guo & Kevin J. Lansing, 1997. "Indeterminacy and stabilization policy," Working Paper 9708, Federal Reserve Bank of Cleveland.
  2. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
  3. Mino, Kazuo, 1999. "Non-separable utility function and indeterminacy of equilibrium in a model with human capital," Economics Letters, Elsevier, vol. 62(3), pages 311-317, March.
  4. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  5. Pelloni, A. & Waldmann, R., 1997. "Stability Properties in a Growth Model," Economics Working Papers eco97/11, European University Institute.
  6. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "Growth Effects of Income and Consumption Taxes," CEPR Discussion Papers 1979, C.E.P.R. Discussion Papers.
  7. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
  8. Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers 651, Yale - Economic Growth Center.
  9. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, vol. 63(1), pages 97-112, June.
  10. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers 96-44, C.V. Starr Center for Applied Economics, New York University.
  11. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  12. Perli, Roberto & Sakellaris, Plutarchos, 1998. "Human capital formation and business cycle persistence," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 67-92, June.
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