Capital Mobility in Neoclassical Models of Growth / Robert J. Barro, N. Gregory Mankiw, Xavier Sala-i-Martin.

Format:

Book

Author/Creator:

Barro, Robert J.

Contributor:

National Bureau of Economic Research.

Mankiw, N. Gregory.

Sala-i-Martin, Xavier.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4206.

NBER working paper series no. w4206

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

The empirical evidence reveals conditional convergence in the sense that economies grow faster per capita if they start further below their steady-state positions. For a homogeneous group of economies - like the U.S. states, regions of western European countries, and the GECD countries - the convergence is unconditional in that the poor economies grow faster than the rich ones. The neoclassical growth model for a closed economy fits these facts if capital is viewed broadly to encompass human investments, so that diminishing returns to capital set in slowly, and if differences in government policies or preferences about saving lead to heterogeneity in steady-state positions. Yet if the model is opened to allow for full capital mobility, then the predicted rates of convergence for capital and output are much higher than those observed empirically. We show that the open-economy model conforms with the evidence if an economy can use foreign debt to finance only a portion of its capital, even if 50% or more of the total. The problems in using human capital as collateral can explain the required imperfection in the credit market.

Notes:

Print version record

November 1992.