The Two Sector Ramsey Model

Abstract

This chapter presents the two-sector neoclassical growth model where the transition path of consumption and saving is determined by households optimizing over time, and where firms interact in a competitive market environment. The single sector version of this model can be traced to Ramsey(1928), and its refinements by Cass (1965) and Koopmans (1965). King and Rebelo (1993) study, numerically, the transitional dynamics of the model which they confront to several stylized factors of economic growth. Barro and Sala-i-Martin (2004) also provide a full treatment of the single sector model.