Stability, global dynamics and Markov equilibrium in models of endogenous economic growth

This paper studies the local and global dynamics of two-sector models of endogenous growth with economy-wide external effects and taxes on capital and labor. The local analysis classifies the parameter space depending on the number of stationary solutions and local stability of equilibria. The global analysis shows that if taxes are within certain bounds and the size of the external effects on the average level of human capital is smaller than the share of physical capital, the equilibrium path is monotone and therefore a continuous Markov equilibrium can be constructed. (C) 2006 Elsevier Inc. All rights reserved.