Indeterminacy and endogenous growth with social constant returns

By examining endogenous growth models with physical and human capital, this paper demonstrates that indeterminacy of equilibrium may emerge even in th e absence of increasing returns to scale. The model we examine consists of two production sectors: one produces final goods and the other produces new human capital. Both sectors use physical as well as human capital. It is a ssumed that while the private technology of the representative firm in each sector exhibits decreasing returns to scale, the social technologies of bo th sectors satisfy constant returns because of the presence of sector-speci fic externalities. We demonstrate that a small divergence between private a nd social factor intensity conditions generates indeterminacy of equilibriu m rather easily even under constant returns. intuitive implications of the sourer of indeterminacy and a generalization of the modal ara also presente d. (C) 2001 Academic Press.