Ronald W. Jones and Two-Sector Growth: Ramsey Optimality in the RSS and Leontief Cases

Abstract

In this essay, we interpret the value-loss line, familiar in models of undiscounted optimal growth, as delineating the cone of diversification, familiar in models of international trade. This interpretation allows an embedding of the 2-sector Robinson-Solow-Srinivasan (RSS) model in the 2-sector Leontief model, and clarifies situations when the Leontief case offers additional insights into transition dynamics. The geometry underlying this embedding extends an earlier construction due to Khan-Mitra, and it has independent interest.

JEL Classifications:

• D90
• C62
• O21

Keywords:

• factor intensities
• cone of diversification
• Brock prices
• cyclicity