Transitional Dynamics in Two-Sector Models of Endogenous Growth

Casey Mulligan and Xavier Sala-i-Martin

The Quarterly Journal of Economics, 1993, vol. 108, issue 3, 739-773

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 d)niamics. 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.

Date: 1993
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Working Paper: Transitional Dynamics in Two-Sector Models of Endogenous Growth (1992)
Working Paper: Transitional Dynamics in Two-Sector Models of Endogenous Growth (1992)
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