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

    Keywords

    • Indeterminacy
    • Public services
    • Two-sector endogenous growth

    ASJC Scopus subject areas

    • Economics and Econometrics

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