Intersectoral external effects, multiplicities & indeterminacies

This contribution focuses on the scope for indeterminacies that originate from global capital stock externalities in a reference two-sector growth model. A set of sufficient conditions for local indeterminacies and oscillations is established and builds upon a new class of intersectoral dependency in competitive economies, The uniqueness of the steady state is also questioned and conditions for global indeterminacies are delimited. The underlying features of preferences and sectoral production technologies are assessed in this paper. It is shown that the principal attribute of a two-sector environment, i.e., a non-linear production possibility frontier, directly underlies indeterminacies. It is the influence of external effects on the relative price of the investment good that leads to these phenomena, a key role being detected in this perspective for external effects in the consumption good sector. (C) 2001 Elsevier Science B.V. All rights reserved.