A Multi-sector Nonlinear Dynamic Input–Output Model with Human Capital

Abstract

In this paper, a two-sector model of endogenous growth is extended to a multi-sector nonlinear dynamic input–output model. If the model is on its balanced growth path (where prices – but not quantities – are assumed constant over time), it can be shown that the linear dynamic Leontief model is a special case. At the same time, on its balanced growth path, our model can be interpreted as a CGE model. The model distinguishes n + 1 sectors: n sectors producing physical goods, and one sector producing new human capital. A method is given for calculating the growth rate of GNP, the profit rate, the prices of goods, and the level of production when the model is on its balanced growth path. We point out the relation between the balanced growth rate and the profit rate.