Chapter 11 Homothetic multisector growth models

Abstract

Multisector growth (MSG) models have a special aura that is shared with computable general equilibrium (CGE) models. Both of them, with their many sectors (industries and goods), are known as trying to convert Walrasian general equilibrium systems from an abstract economy representation into workable models with industrial structures changing as actually observed. Yet, they are plagued by severe problems. First, they are difficult subjects involving systems of nonlinear equations. Second, their prevalent numerical (algorithmic) methodology offers little in the way of showing a clear overall picture and understanding the plethora of numbers pouring out from model simulations. The great wood is not seen for all the trees. Hence, the main objective is to set out comparative static and dynamic systems for succinctly stating and explicitly solving MSG models. The Walrasian general equilibrium is completely stated by one equation and the multisector dynamics by one differential equation. Benchmark solutions are shown for three Constant Elasticity of Substitution (CES) parameter regimes of a 10-sector general equilibrium model.

Citation

Jensen, B.S. and Lehmijoki, U. (2011), "Chapter 11 Homothetic multisector growth models", de La Grandville, O. (Ed.) Economic Growth and Development (Frontiers of Economics and Globalization, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 289-318. https://doi.org/10.1108/S1574-8715(2011)0000011016