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2017 | OriginalPaper | Chapter

14. Nonbalanced Growth in a Neoclassical Two-Sector Optimal Growth Model

Author : Harutaka Takahashi

Published in: Sunspots and Non-Linear Dynamics

Publisher: Springer International Publishing

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Abstract

For a neoclassical two-sector optimal growth model with Cobb-Douglas technologies and sector specific technical progress, we examine three properties: (i) each sector has an optimal path by which it will grow at a constant growth rate (an optimal constant growth path); (ii) the optimal constant growth paths satisfy saddle path stability; (iii) the elasticity of substitution between total labor and total capital is less than one along the optimal constant growth paths. These results, presented by Acemoglu and Guerrieri in their model with two intermediate good sectors and one final good sector, will give a firm theoretical base for establishing the Kaldor and Kuznets facts, and are proven herein for a neoclassical growth model.

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previous chapter Technological Progress, Employment and the Lifetime of Capital
next chapter An Argument for Positive Nominal Interest
Footnotes
1
Recently, Alvarez-Cuadrado and Long (2011) present the third mechanism for a structural change, where they emphasize differences in the elasticity of substitution across sectors.
 
2
Since they assume the same production functions among sectors, except sector specific exogenous technical progress, their model would be identified as one-commodity economy. Because of this property, they could aggregate sector’s output even in a transition process. Contrast to their model, we will study a two-commodity economy in this paper.
 
3
See Sect. 20.2 of Acemoglu (2009) for detailed discussion.
 
4
One crucial difference from Baierl et al. (1998) is that the labor force keeps growing at g in our model. Accordingly we have the per-capita capital constraint: \(\ell _0 k_0 +\ell _1 k_1 \,{=}k\) instead of \(k_0~+k_1 \,{=}k\).
 
5
Since Cobb-Douglas production functions satisfy the “Inada conditions”, so all variables are bounded and Assumption 4 guarantees that the objective function of the problem is infinitely summable.
 
6
We will use the function symbol “u(.)” instead of the explicit form defined in Assumption 1 for a notational convenience.
 
7
Acemoglu (2009) also discusses on the factor proportion differences in Sect. 20.2.
 
8
Levhari and Liviatan (1972) has proved this property in a general optimal growth model.
 
9
Note that the case of \(\rho =1\) is excluded because of Assumption 3.
 
Literature
Acemoglu, D., & Guerrieri, V. (2008). Capital deepening and nonbalanced economic growth. Journal of Political Economy, 116, 467–498.CrossRef
Acemoglu, D. (2009). Introduction to Modern Economic Growth. Princeton UP.
Alonso-Carrera, J., & Raurich, X. (2015). Demand-based structural change and balanced economic growth. Journal of Macroeconomics, 46, 356–374.CrossRef
Alvarez-Cuadrado, F., & Long, N. (2011). Capital-labor substitution, structural change and growth. CIRANO Scientific Series 2011s-68.
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Metadata
Title
Nonbalanced Growth in a Neoclassical Two-Sector Optimal Growth Model
Author
Harutaka Takahashi
Copyright Year
2017
Book
Sunspots and Non-Linear Dynamics

Print ISBN: 978-3-319-44074-3

Electronic ISBN: 978-3-319-44076-7

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-44076-7_14