Multiple steady states and indeterminacy in the Uzawa–Lucas model with educational externalities

This study attempts to endogenize educational efficiency, a critical exogenous parameter in the Uzawa–Lucas model, where human capital accumulation plays an important role in economic growth. Human capital accumulation is a puzzle; in addition to the broadly recognized positive spillover of human capital, educated human capital productivity occasionally shows a decreasing trend in the economic growth process (Jones in Q J Econ 110:495–525, 1995; Pritchett in World Bank Econ Rev 15(3):367–391, 2001). Incorporating these phenomena as educational externalities into the Uzawa–Lucas model, we analyze the properties of endogenous growth and stagnation. The model yields multiple steady states under intertemporal substitution elasticity larger than 1. The results reveal that a steady state with a higher growth rate demonstrates indeterminacy, and the selection of the steady states depends on expectation formation.