Frameworks of
Analysis
In
recent decades the one-sector growth model and the one sector
overlapping-generations model have become the standard frameworks for the
analysis of dynamic economic phenomena. These frameworks generated novel
insights in the understanding of aggregate economic behavior, while maintaining
simplicity and analytical tractability. A similar level of interest has not
experienced by dynamic two-sector models, despite the fact that modeling of a
wide range of issues concerning growth, trade, sectional adjustments, etc.,
necessitates the employment of multi-sector dynamic models. This lack of broad
interest could have been attributed in part to the absence of a two-sector
overlapping-generations model. Unlike the development of the one sector
overlapping-generations model (Diamond, 1965) that has complemented the one
sector growth model, there has been no parallel development of a comprehensive
overlapping-generations counterpart to the two-sector model (Uzawa, 1964).
Galor
(1992) develops a two-sector overlapping-generations model, characterizing the
dynamical system globally and establishing sufficient conditions for global
uniqueness of perfect-foresight equilibrium path. Despite the global uniqueness
of a perfect-foresight equilibrium path, the dynamical system may be
characterized by multiple non-trivial steady-state equilibria.
Thus, the paper provides (a) an analytically tractable framework for global
dynamic analysis of phenomena whose modeling necessitates a the presence of
several goods, and (b) an additional framework in which the implications of
multiple steady-states can be examined, without being subjected to the
conceptual difficulties associated with indeterminacy of dynamic equilibria and without the introduction of non-convexities
or externalities.
Galor-Ryder
(1989) analyzes the existence uniqueness and stability of perfect foresight equilibria in a one-sector overlapping-generations model.
In addition it establishes the viability of multiple-steady-state equilibria in this conventional (convex) framework of
analysis. Hence, the study provides a framework in which the implications of
multiple steady states can be examined, without being subjected to the
conceptual difficulties associated with indeterminacy of dynamic equilibria and without the introduction of non-convexities
or externalities.