Complex dynamics in a two-sector Solow–Swan Model

This article investigates the dynamics of a parsimonious extension of the standard neo-classical growth model introduced by Solow (1956) and Swan (1956) to a two-sector growth model in discrete time. We identify the economy’s propensity to invest as a market mechanism that may cause endogenous business cycles and complex dynamics, provided that the elasticity of factor substitution in producing consumption goods is sufficiently small. The theoretical results are supported by numerical evidence for topological chaos and strange attractors.