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Our analytical results have been obtained under the simplifying assumption that the inverse of the intertemporal elasticity of substitution equals the physical capitalshare.
The value of the capitalshare (a=0.3) is taken in the usual range employed in the literature.
While the growth rate depends on the capitalshare in the steady state, the same does not apply for labour.
The parameters m and n denote capitalshare in the market and home sectors, respectively, and are between zero and one.
The capitalshare parameter, a, is set to 38%.
We choose = 0.07, = 0.09, and = 0.35 (capitalshare in rich countries), values typically used in calibrating dynamic models.
The same is true for an economy with a slightly stronger externality and a lower physical capital share, as long as such economy experiences positive growth.
We prove that endogenous fluctuations can emerge only if the elasticity of capital-labor substitution is smaller than the capitalshare in income, which is lower than one half.
Expression (46) shows that a reduction in z increases the long-term growth rate more intensively the higher the capitalshare 3 .
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