Indeterminacy in a two-sector endogenous growth model with productive government spending

Yunfang Hu, Ryoji Ohdoi, Koji Shimomura

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

We construct a two-sector endogenous growth model in which productive government spending is essential for sustaining an economy's long-run growth. It is shown that, like the original one-sector [Barro, R.J., 1990. Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103-125] model, the balanced growth path (BGP) equilibrium is unique under some conditions. Unlike Barro (1990), however, our two-sector framework exhibits transitional dynamics. In fact, when the intertemporal elasticity of substitution for consumption is large, around the BGP equilibrium, there is a continuum of equilibrium paths whose growth rates commonly converge to a balanced growth rate. That is, the BGP equilibrium is indeterminate.

Original languageEnglish
Pages (from-to)1104-1123
Number of pages20
JournalJournal of Macroeconomics
Volume30
Issue number3
DOIs
Publication statusPublished - 2008 Sep
Externally publishedYes

Keywords

  • Indeterminacy
  • Public services
  • Two-sector endogenous growth

ASJC Scopus subject areas

  • Economics and Econometrics

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