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The miniature two-sector model of optimal growth: The neglected case of a capital-intensive investment-good sector

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  • Fujio, Minako
  • Lei, Yan
  • Deng, Liuchun
  • Khan, M. Ali

Abstract

This paper considers the neglected case of a capital-intensive investment-good sector in the two-sector Robinson-Shinkai-Leontief (RSL) model of discrete-time optimal economic growth. We find the optimal policy to be surprisingly simple and uniform between the discounted and undiscounted cases. The “straight-down-the-turnpike” policy, first identified by Winter and Shell, entails unemployment or excess supply of capital throughout the optimal transition dynamics. We extend our analysis to the case of circulating capital and find the optimal policy to have the same property. We also briefly indicate possibilities for application to topical concerns.

Suggested Citation

  • Fujio, Minako & Lei, Yan & Deng, Liuchun & Khan, M. Ali, 2021. "The miniature two-sector model of optimal growth: The neglected case of a capital-intensive investment-good sector," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 662-671.
    • Handle: RePEc:eee:jeborg:v:186:y:2021:i:c:p:662-671
    DOI: 10.1016/j.jebo.2020.11.007
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    References listed on IDEAS

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    4. Deng Liuchun & Fujio Minako & Khan M. Ali, 2019. "Optimal growth in the Robinson-Shinkai-Leontief model: the case of capital-intensive consumption goods," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(4), pages 1-18, September.
    5. M. Ali Khan & Tapan Mitra, 2005. "On choice of technique in the Robinson–Solow–Srinivasan model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(2), pages 83-110, June.
    6. Fujio, Minako, 2008. "Undiscounted optimal growth in a Leontief two-sector model with circulating capital: The case of a capital-intensive consumption good," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 420-436, May.
    7. Kazuo Nishimura & Makoto Yano, 2012. "Non-linear Dynamics and Chaos in Optimal Growth: An Example," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 127-150, Springer.
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    Cited by:

    1. Liuchun Deng & Minako Fujio & M. Ali Khan, 2023. "On optimal extinction in the matchbox two-sector model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 445-494, August.
    2. Liuchun Deng & Minako Fujio & M. Ali Khan, 2022. "On Sustainability and Survivability in the Matchbox Two-Sector Model: A Complete Characterization of Optimal Extinction," Papers 2202.02209, arXiv.org.

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    More about this item

    Keywords

    Two-sector optimal growth; Capital-intensive investment-good sector; RSL model; Srinivsan-Uzawa model; Straight-down-the-turnpike theorem;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

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