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The (Much Understated) Quantitative Role of Capital Accumulation and Saving

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  • Genevieve Verdier

    (Texas A&M University)

Abstract

Can factor accumulation still help us understand differences in capital inflows and income across countries? This paper offers a quantitative evaluation of neoclassical models of growth with collateral constraints. Previous work has found evidence that supports the qualitative predictions of this class of models for the direction of capital flows - -- they are driven by domestic scarcity --- and the role of domestic savings --- they act as complements rather than substitutes to capital inflows. In this paper, I estimate the factor shares implied by the long-term dynamics of external debt observed in the data. I find that a model with constant-elasticity-of substitution technology and a collateral constraint can generate plausible capital shares and cross- country distributions of debt-to-GDP ratios. This suggests that capital accumulation may play a more important role than suggested by the recent literature on growth, even in a world with limited financial integration.

Suggested Citation

  • Genevieve Verdier, 2005. "The (Much Understated) Quantitative Role of Capital Accumulation and Saving," Macroeconomics 0507015, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0507015
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    Cited by:

    1. Ziesemer, Thomas, 2007. "Estimations of US debt dynamics: Growth cum debt and the savings glut in Kouri’s model," MERIT Working Papers 2007-003, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    More about this item

    Keywords

    Credit constraints; net external debt; capital flows; savings; convergence; capital shares.;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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