DP2585 Indeterminacy in a Small Open Economy Ramsey Growth Model

Author(s): Mark Weder
Publication Date: October 2000
Keyword(s): Increasing Returns, Indeterminacy, Small Open Economies
JEL(s): E32, F12
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2585

This paper presents a small open economy version of the Benhabib and Farmer [2] two sector optimal growth model with production externalities. It is shown that indeterminacy is considerably easier to obtain under a regime of perfect world capital markets than in the closed economy variant. Furthermore, the result is not dependent on high labour supply elasticity since that input is fixed. The paper also examines a variant that takes into account external borrowing constraints and it is shown that the qualitative results on indeterminacy remain basically unaffected by this extension.