An Open-Economy Ramsey-Cass-Koopmans Model in Reduced Form

Daniel Spiro

No 9293, CESifo Working Paper Series from CESifo

Abstract: What is a good reduced-form representation of Ramsey-Cass-Koopmans. (RCK) model? Solow’s model (despite non-optimizing agents) provides predictions largely consistent with a closed-economy RCK but fundamentally differs regarding open-economy income convergence. Where RCK predicts partial income and consumption convergence between open economies Solow predicts full convergence. This paper presents, by a small modification of the savings behavior in the Solow model, a framework that matches RCK’s properties in closed and open economies. The model, labeled rSolow, is analytically tractable, allowing closed-form solutions of all variables, thus makes several explicit and novel predictions. This includes how income and inequality depend on country size; that income growth will be a U-shaped function of initial income thus creating differentiated convergence; and that poor countries bene.t from higher saving but rich countries may not.

Keywords: convergence; Ramsey; Solow; inequality; growth (search for similar items in EconPapers)
JEL-codes: E10 E21 F21 F43 O11 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-gro, nep-isf, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9293

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