Local and global indeterminacy and transition dynamics in a growth model with public goods

José Gaspar, Liliana Garrido-da-Silva, Paulo B. Vasconcelos and Óscar Afonso ()
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Liliana Garrido-da-Silva: Universidade do Porto
Paulo B. Vasconcelos: Universidade do Porto
Óscar Afonso: Universidade do Porto

Portuguese Economic Journal, 2023, vol. 22, issue 2, No 6, 314 pages

Abstract: Abstract This paper studies local and global indeterminacy and transition dynamics in an endogenous growth model where public goods increase production and the household’s utility. We study the impact on economic growth in the face of valuing public goods and socially conscious economic agents. When public goods are undervalued, the economy steadily converges to a unique low-growth equilibrium. As the utility share of public goods increases, another equilibrium emerges, but the difference between the two growth rates, “low” and “high”, narrows until both equilibria coalesce and disappear, producing a scenario with no convergence on a balanced growth path (BGP). The low-growth equilibrium is stable, and there may be monotonic convergence toward a broadly stable high-growth equilibrium. The economy may also oscillate between growth rates before reaching the high-growth BGP, or may diverge from it. In addition, before the high-growth BGP becomes unstable, the model may exhibit an unstable limit cycle that surrounds it. Moreover, if social consciousness co-varies with the weight of public goods on utility, a homoclinic orbit may emerge that links the low-growth equilibrium to itself.

Keywords: Growth; Public goods; Local and global indeterminacy; Local and global transition dynamics; Non-separable utility (search for similar items in EconPapers)
JEL-codes: C63 O13 O41 Q58 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10258-022-00216-z

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