THE RETURN TO CAPITAL AND CONVERGENCE IN A TWO SECTOR MODEL OF ENDOGENOUS GROWTH

Author: SONG, E. YOUNG

Source: International Economic Journal, Volume 14, Number 4, Number 4/Winter 2000 , pp. 143-163(21)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

This paper obtains a simple algebraic derivation of the transitional dynamics of a two-sector endogenous growth model. This paper finds that the return to capital and the growth rate of output fall over time on the transition path if the initial ratio of physical capital to human capital is lower than the steady state level. It also shows that two sector endogenous growth models are consistent with the evidence on conditional convergence found by Barro (1991) and Mankiw, Romer, and Weil (1991). Neoclassical growth models and endogenous growth models are impossible to distinguish in terms of the falling rate of return on capital or in terms of conditional convergence. [O41]

Document Type: Research article

DOI: http://dx.doi.org/10.1080/10168730000080032

Affiliations: 1: Sogang University

Publication date: 2000-12-01