A Macro Model of Heterogeneous Growth Ⅱ: An Existence Proof of Transitional Dynamics

In order to makes clear several important sources from which structural transitions occur, Dohtani (2018) constructed an endogenous growth model. However, per capita growth rates of the optimal paths obtained from the model is independent of the initial levels of macroeconomic variables. In other words, the model does not possesses transitional dynamics. This result is inconsistent with the well-known empirical evidence on convergence. See Barro and Sala-i-Martin (Chapters 11 and 12, 1995). In the present paper, by incorporating adjustment costs for investment into the model of Dohtani (2018), we will prove that a modified version yields transitional dynamics