Keywords: Balanced growth, multisector models, chain aggregation
Abstract: The one-sector Solow-Ramsey model is the most popular model of
long-run economic growth. This paper argues that a two-sector approach,
which distinguishes the durable goods sector from the rest of the economy,
provides a far better picture of the long-run behavior of the U.S. economy.
Real durable goods output has consistently grown faster than the rest of
Because most investment spending is on durable goods, the one-sector
of balanced growth, so that the real aggregates for consumption,
output, and the capital stock all grow at the same rate in the long run, is
rejected by U.S. data. In addition, to model these aggregates as currently
constructed in the
U.S. National Accounts, a two-sector approach is required. Implications
macroeconomics are explored.
Full paper (202 KB PDF)
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Last update: May 2, 2001