Economic Growth in an Interdependent World Economy

Roger Farmer and Amartya Lahiri

No 3250, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We outline six facts that should be explained by an international growth model: 1) Conditional convergence; 2) cross-country dispersion of growth rates; 3) cross-country dispersion of per capita income levels; 4) cross-country dispersion of savings rates; 5) within country correlation of savings and investment and 6) cross-country equality of real rates of interest. We argue that the neoclassical model performs poorly in several dimensions and we provide an alternative two-sector endogenous growth model based on the work of Lucas and Romer that can account for all of our stylized facts. Our model accounts for the observation that poor countries grow faster than rich ones (fact number 1) as a consequence of the transitional dynamics of the ratio of physical to human capital. We show that opening capital mobility across countries does not necessarily equate the physical to human capital ratios across countries despite the resultant equalization of factor prices.

Keywords: Endogenous growth; Interdependent world economy (search for similar items in EconPapers)
JEL-codes: F43 O16 O41 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (2)

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Journal Article: Economic Growth in an Interdependent World Economy (2006)
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