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International capital flows and convergence in the neoclassical growth model

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  • Lorenzo Escot
  • Miguel-Angel Galindo

Abstract

To analyze how capital mobility affects economic growth and convergence, this paper will use the analytical solution to the neoclassical growth model with a constant saving rate, beginning with the closed-economy Solow growth model. An introduction to international capital flows will follow. In an open economy, free capital mobility assures an instantaneous convergence in interest rates that, under a perfect competence situation, implies the instantaneous convergence in income levels among homogeneous countries. Taking into account this question and to reconcile these results with empirical evidence, that is, with the gradual convergence observed, the assumption is introduced that in spite of free capital mobility, there are international credit restrictions. In this case, we will show how the rate of convergence depends on the international capital inflows received. Copyright International Atlantic Economic Society 2000

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  • Lorenzo Escot & Miguel-Angel Galindo, 2000. "International capital flows and convergence in the neoclassical growth model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(3), pages 451-460, August.
    • Handle: RePEc:kap:iaecre:v:6:y:2000:i:3:p:451-460:10.1007/bf02294964
    DOI: 10.1007/BF02294964
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    References listed on IDEAS

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    2. Michael Paffermayr, 2009. "Spatial Convergence of Regions Revisited: A Spatial Maximum Likelihood Systems Approach," Working Papers 2009-07, Faculty of Economics and Statistics, Universität Innsbruck.

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