Endogenous Growth Model In A Two Sector Competitive Economy: Service Good Used As A Factor Input In Commodity Sector

Abstract

This paper considers a closed economy model with two sectors namely, commodity sector and service sector. The service output is exclusively used as an intermediate input in producing commodity output. Here, in this model, an endogenous growth model is considered in which the service output is used as an intermediate good in commodity sector. Accumulation of human capital depends on the government expenditure on education sector. The government levies tax on the commodity output.  In this framework, on the basis of the unique steady state growth path, where human capital accumulation works as the source of growth for all other sectors of the economy, a comparative static analysis has been done. In this particular model, we have analysed, how the share of physical capital that is engaged to the service sector is influenced by the commodity output elasticity of physical capital and service output elasticity of skilled labour.