Equilibrium dynamics in two-sector models of endogenous growth

Abstract

Abstract This paper considers two extensions of the Uzawa-Lucas framework. In our first extension, physical capital is included as an input of the educational sector. In our second extension, leisure considerations are assumed to play a positive role in agents' welfare. The case with physical capital in the production of education features (under standard conditions) a unique steady state, and thus the dynamics are qualitatively similar to those of the original Uzawa-Lucas framework. In our second model with leisure there could be a multiplicity of steady states with different rates of growth. What determines here the chosen rate of growth is the initial relative amount of physical and human capital. Our results therefore illustrate that in a world without externalities there could coexist different long-term growth rates.