Introduction

In the present paper we are interested in the growth process in a two-sector model of capital accumulation and show that balanced growth equilibria are globally stable under the neoclassical hypotheses.

The neoclassical model of economic growth, as it has been developed by Solow and Swan, is formulated in terms of the aggregate production function. The aggregate production function specifies the relationship between output and factors of production, and output is assumed to be composed of homogeneous quantities identical with capital, or at least price ratios between output and capital are assumed constant. The economy we are concerned with in this paper, on the other hand, consists of two types of goods, investment-goods and consumption-goods, to be produced by two factors of production, capital and labor; prices of investment-goods and consumption-goods are determined so as to satisfy the demand requirements. It will be assumed that capital depreciates at a fixed rate, the rate of growth in labor is constant and exogenously determined, capitalists' income is solely spent on investment-goods, that of laborers on consumption-goods, and production is subject to the neoclassical conditions. Under such hypotheses, then, it will be shown that the state of steady growth exists and the growth process, starting at an arbitrary capital and labor composition, approaches some steady growth. If the consumption-goods sector is always more capital-intensive than the investment-goods sector, then the steady growth is uniquely determined and it is stable in the small as well as in the large.