Transitional dynamics in a two-sector non-scale growth model

This paper shows how, under plausible conditions, the transitional dynamics in a two-sector R&D-based non-scale growth model are represented by a two-dimensional stable saddlepath, thus enriching the transitional adjustment paths relative to that of the standard two-sector endogenous growth model. The transition speed itself is variable both through time and across sectors. Capital and knowledge grow at very different rates, consistent with the empirical evidence. Numerical simulations are used to characterize the transition paths in response to a range of specific shocks. In some cases, capital or knowledge may overshoot their respective long-run responses, during the transitional dynamics. (C) 2001 Elsevier Science B.V. All rights reserved.