Transitional Dynamics in a Multi-Sector Ramsey-Model with Non-Homothetic Preferences: Development Traps and Structural Change Feedbacks
29 Pages Posted: 17 Feb 2013
Date Written: February 15, 2013
Recent literature studies structural change in neoclassical multi-sector growth models. The literature focuses on the analysis of dynamic equilibriums (“aggregate balanced growth paths”). We study the transitional dynamics of a multi-sector Ramsey-model with non-homothetic preferences and inter-sector technology disparity. We show that the model converges to the aggregate balanced growth path only for a subset of feasible initial capital values (“convergent range”). Outside the convergent range the economy is in development traps. Within the convergent range the transitional dynamics are quantitatively different from the transitional dynamics of a standard one-sector Ramsey-model due to feedbacks between aggregate dynamics and structural change.
Keywords: multi-sector growth modelling, neoclassical growth theory, Ramsey model, structural change, labour allocation, sectors, balanced growth, unbalanced growth
JEL Classification: O41, O14
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