Abstract
The equilibrium growth path for this economy depends upon the relative sectoral capital intensities of the two production functions. If the nontruded sector is relatively intensive in traded capital, both the relative price of nontraded output and the price of installed capital always remain at their respective steady‐state levels. Traded capital and aggregate wealth are always on their respective steady‐state growth paths. Nontraded capital undergoes transitional dynamics, ultimately converging to the growth rate of traded capital and an equilibrium ratio of traded to nontraded capital. If the sectoral intensities are reversed, both asset prices will follow transitional adjustment paths.
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