Indeterminacy in a small open economy Ramsey growth model

This paper presents a small open economy version of the J. Benhabib and R. E. A. Farmer (1996, J. Monet. Econ. 37, 421-443) 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 a high labor supply elasticity since that input is fixed. The paper also examines a variant which takes into account external borrowing constraints and it is shown that the qualitative results on indeterminacy remain basically unaffected by this extension. (C) 2001 Academic Press.