Abstract
The two-sector model of economic growth is of special interest because it is simple enough to be manageable yet rich enough to yield a variety of results. However, the usual way in which economic theorists handle this model is far from being the most efficient. The static efficiency conditions, that is, the full employment of both factors and the equality of the marginal rates of substitution, are derived over and over again, when the main task is to study issues, such as the uniqueness of momentary equilibrium prices and outputs or the existence, uniqueness, and stability of long-run equilibria in descriptive growth models or optimal growth models. This chapter describes the properties of the per capita production set, relating two outputs per head to capital per head, and shows that the resulting per capita production function considerably simplifies the study of the two-sector growth model. It also discusses that the model can be adapted to study problems of economic growth or decay with natural resources.
Published Version
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