Transitional Dynamics in an Endogenous Growth Model with Physical Capital, Human Capital and R&D

Abstract

We analyze the transitional dynamics of an endogenous growth model with physical capital, human capital, and R&D. We provide conditions for the existence of a feasible steady state equilibrium with positive long-run growth. For appropriate parameter values, the transitional dynamics of the model is represented by a two-dimensional stable manifold. This provides much richer dynamics than that of the standard two-sector endogenous growth model which is characterized by a one-dimensional stable manifold. We also show how the adjustment paths can be correctly computed by noting that the continuity of the shadow prices involves the continuity of transitional paths.