EconPapers    
Economics at your fingertips  
 

On the Stability of the Two-Sector Neoclassical Growth Model with Externalities

Berthold Herrendorf () and Akos Valentinyi ()

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: We study a class of two-sector neoclassical growth models, in which one sector produces consumption goods and the other sector produces the capital goods for both sectors and in which the capital-producing sector has sector-specific externalities. We show analytically that if the capital goods for the two sectors are imperfect substitutes, then local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters. More specifically, we show that a necessary condition for local indeterminacy is an upward-sloping aggregate labor demand curve in the capital sector, which requires a counterfactual strength of the externality. We show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state for all empirically plausible specifications of the model parameters. These findings differ sharply from the standard result that if the two capital goods are perfect substitutes, then local indeterminacy occurs in the two-sector model for a wide range of plausible parameter values.

References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://wpcarey.asu.edu/tools/mytools/pubs_admin/FI ... ithExternalities.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://wpcarey.asu.edu/tools/mytools/pubs_admin/FILES/OntheStabilityoftheTwo-SectorNeoclassicalGrowthModelwithExternalities.pdf [301 Moved Permanently]--> https://wpcarey.asu.edu/tools/mytools/pubs_admin/FILES/OntheStabilityoftheTwo-SectorNeoclassicalGrowthModelwithExternalities.pdf)

Related works:
Journal Article: On the stability of the two-sector neoclassical growth model with externalities (2006) Downloads
Working Paper: On the Stability of the Two-Sector Neoclassical Growth Model with Externalities (2002) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:asu:wpaper:2167721

Access Statistics for this paper

More papers in Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University Contact information at EDIRC.
Bibliographic data for series maintained by Steve Salik ().

 
Page updated 2018-08-09
Handle: RePEc:asu:wpaper:2167721