Multiplicity, Overtaking and Convergence in the Lucas Two-Sector Growth Model

José Ruiz-Tamarit

No 2002-17, Working Papers from FEDEA

Abstract: This paper provides the complete closed-form solution to the Lucas two-sector model of endogenous growth. We study the issues of existence, unique-ness, multiplicity, positivity, transitional dynamics and long-run growth, re-lated to the competitive equilibrium paths. We identify the parameter range where the different results hold and deduce the entire trajectories for the original variables. We revise the results on convergence and overtaking which arise from this model, and prove that the parameterization currently used as the background for an explanation of economic miracles and disasters, is not satisfactory because of its counterintuitive implications.

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