ABSTRACT
There are at least three different approaches to endogenous growth (see Jones and Manuelli, 1997). Two include non-convexities or externalities or both. The third relies on convex models of growth in which, properly interpreted, the two welfare theorems hold (see, e.g., Jones andManuelli, 1990 and Rebelo, 1991). Themodels in this last strand of literature are characterized by the fact that production is not limited byprimary resources andhence the equilibriumpaths can showendogenous growth. For the sake of simplicity we call ‘convex’ those models whose equilibria satisfy the conditions of the two Fundamental Theorems of Welfare Economics, and subdivide them into ‘bounded models’ (those whose feasible paths are limited by the availability of natural resources) and ‘unboundedmodels’. In the last fifteen years, models with explicit consumption and a production side in which ‘goods are made out of goods alone’1 have been widely used in the new growth theory, especially in that approach to endogenous growth based on the assumption that all production factors are reproducible (Lucas, 1988; Rebelo, 1991). It could be argued that any mechanism found in the literature to make sustained growth possible has essentially involved the assumption that there is a ‘core’ of capital goods whose production does not require (either directly or indirectly) non-producible factors. In fact the reduced form of most endogenous growth models is linear or asymptotically linear in the reproducible factors (see for example, Frankel, 1962; Romer, 1986b, 1987, 1990b).2 Consequently, in the endogenous growth literature, static analysis is mainly centred around the concept of the ‘balanced growth path’, which, in this context, performs the role played by the stationary state in convex bounded models. It is common in the literature on growth to study one-or two-sector models. The
exceptions are some convex models. Recent contributions to n-sector unbounded growthmodels have been provided byDasgupta andMitra (1988), Dolmas (1996), Kaganovich (1998), Ossella (1999), and Freni et al. (2001, hereafter FGS).
