DIVERGENCE IN ECONOMIC-PERFORMANCE - TRANSITIONAL DYNAMICS WITH MULTIPLE EQUILIBRIA

Special pairs of the utility functions and the production functions ar e used in this paper to uncover the transitional dynamics in a Lucas m odel of growth. The main findings are as follows: A continuum of equil ibria exists if the external effect of human capital in goods producti on is sufficiently large. The process of lagging behind, catching up w ith, and overtaking that we often observe in the world economy can be explained. Finally, some equilibrium paths are shown to have such comp licated patterns that the dynamics conjectured by Lucas are too simple to be correct. Journal of Economic Literature Classification Numbers: O41, C61. (C) 1994 Academic Press, Inc.