Growth and equilibrium indeterminacy: the role of capital mobility

Economic Theory, 2001, vol. 17, issue 1, 197-208

Abstract: The paper presents a human capital driven endogenous growth model which, in general, permits a multiplicity of equilibrium balanced growth paths. It is shown that allowing for perfect capital mobility across countries increases the range of parameter values for which the model permits equilibrium indeterminacy. As opposed to the closed capital markets case, simple restrictions on preferences are no longer sufficient to eliminate the indeterminacy. Intuitively, under perfect capital mobility agents are able to smooth consumption completely. This induces an economy with open capital markets to behave like a closed economy with linear preferences thereby increasing the possibility of equilibrium indeterminacy.

Keywords: Growth; -; Human; capital; -; Equilibrium; indeterminacy; -; Capital; mobility. (search for similar items in EconPapers)
JEL-codes: F4 O4 (search for similar items in EconPapers)
Date: 2000-11-14
Note: Received: 18 November 1998; revised version: 10 August 1999
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Citations: View citations in EconPapers (5)

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