Heterogeneous Capital in a Two‐Sector Overlapping‐Generations Model

In a seminal paper Galor (1992) investigated the equilibrium dynamics of the well‐known neoclassical two‐sector growth models of the sixties within an overlapping‐generations (OLG) model of the Samuelson (1958)‐‐Diamond (1965) type. In accordance with the aggregative structure of these neoclassical growth models Galor assumed two production sectors and only one homogeneous capital good. This paper utilises the techniques which Galor developed for the homogeneous capital case in order to analyse the equilibrium dynamics of a two‐sector OLG model with heterogeneous capital and static price expectations of agents. The temporary and intertemporal equilibrium characteristics of this model structure are then applied to the inconclusive Filippi (1980)‐‐Morishima (1980) controversy over the logical consistency of Morishima's (1977) reformulation of Walras' capital theory.