Growth and Indeterminacy in Dynamic Models with Externalities

Michele Boldrin and Aldo Rustichini

Econometrica, 1994, vol. 62, issue 2, 323-42

Abstract: In this paper we study the indeterminacy of equilibria in infinite horizon capital accumulation models with technological externalities. Our investigation encompasses both models with bounded and unbounded accumulation paths, and models with one and two sectors of production. Under reasonable assumptions we find that equilibria are locally unique in the one sector economies. The situation is different in economies with two sectors of production. Here it is very easy to construct analytical examples where a positive external effect induces a two dimensional manifold of equilibria converging to the same steady state (in the bounded case) or to the constant growth rate (in the unbounded case). For the latter we also point out that the dynamic behavior of these equilibria is quite complicated and that persistent fluctuations in their growth rates are possible. Copyright 1994 by The Econometric Society.

Date: 1994
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