Capital Mobility in Neoclassical Models of Growth

Robert J. Barro, N. Gregory Mankiw, and Xavier X. Sala-i-Martin

American Economic Review; v85 n1 March 1995, pp. 103-15.


The neoclassical growth model accords with empirical evidence on convergence if capital is viewed broadly to include human investments, so that diminishing returns to capital set in slowly, and if differences in government policies or other variables create substantial differences in steady-state positions. However, open-economy versions of the theory predict higher rates of convergence than those observed empirically. The authors show that the open-economy model conforms with the evidence if an economy can borrow to finance only a portion of its capital, for example, if human capital must be financed by domestic savings.


One, Two, and Multisector Growth Models, O410. Multisector Growth Models and Related Topics, 1113. One and Two Sector Growth Models and Related Topics, 1112.

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