Convergence In Neoclassical Models With Capital Mobility And Two Kinds Of Capital
The major objective of the paper is to provide a theoretical description of convergence in open economies with various initial ratios of human to physical capital. To avoid immediate convergence, adjustment costs (higher for human capital than for physical capital investment) are introduced. The model is calibrated consistently with empirically-observed slow long-run convergence. Economies with high initial ratios of human to physical capital are, however, predicted to grow quickly in the short run. Moreover, substantial current-account deficits may occur due to high marginal products of physical capital and resulting high levels of domestic physical capital investment. This analysis seems relevant to Central European economies, which exhibit high ratios of human to physical capital, current-account deficits, and relatively high average growth rates.
Volume (Year): 4 (1997)
Issue (Month): 6 ()
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