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Endogenous Growth, Convergence and Fiscal Policies in an Interdependent World

In: Open-Economy Macroeconomics

Author

Listed:
  • George S. Alogoskoufis

    (Birkbeck College
    CEPR)

  • Frederick Ploeg

    (CEPR
    University of Amsterdam)

Abstract

Older vintages of growth theory such as Solow (1956) Swan (1956) or Cass, (1965) assume diminishing marginal productivity of capital and predict convergence of levels in output and capital, so that they are of little use in answering questions of development. ‘Poor’ countries have a lower capital stock and thus a higher marginal productivity of capital and a higher interest rate than ‘rich’ countries. Consequently, consumers in ‘poor’ countries find it more worthwhile to save and postpone consumption than those in ‘rich’ countries and thus ‘poor’ countries grow faster than ‘rich’ countries until they have caught up. These older vintages of growth theories are of little use in explaining persistent differences in long-run growth rates, since these are simply given by the sum of the exogenous rate of population growth and the exogenous rate of labour-augmenting technical progress.

Suggested Citation

  • George S. Alogoskoufis & Frederick Ploeg, 1993. "Endogenous Growth, Convergence and Fiscal Policies in an Interdependent World," International Economic Association Series, in: Helmut Frisch & Andreas Wörgötter (ed.), Open-Economy Macroeconomics, chapter 15, pages 272-288, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-12884-6_15
    DOI: 10.1007/978-1-349-12884-6_15
    as

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