We study a two-sector model of economic growth with labor augmenting external effects. Using general specifications of the technologies, we derive necessary and sufficient conditions for local indeterminacy. We show that, when the investment good sector is capital intensive at the private level, the necessary condition for the growth ray to be indeterminate is that the cost of forgoing consumption is not too high. When the consumption good sector is capital intensive, indeterminacy requires that the depreciation of the capital stock is not too low and that utility is not too concave.
|Title of host publication
|Growth, Trade and Economic Institutions
|Tapio Palokangas, Bjarne S. Jensen, Dieter Bös, Giacomo Corneo, Reino Hjerppe, Juha Honkatukia
|Number of pages
|Published - 2005
|Journal of Economics Zeitschrift für Nationalökonomie Supplementum