Working Paper: CEPR ID: DP542
Authors: Willem H. Buiter; Kenneth M. Kletzer
Abstract: The paper develops a two-country endogenous growth model to investigate possible causes for the existence and persistence of productivity growth differentials between nations, even though these countries show a common technology, constant returns to scale and perfect international capital mobility. Private consumption is derived from a three-period overlapping generations specification. The source of productivity (growth) differentials in our model is the existence of a non-traded capital good (`human capital') whose augmentation requires a non-traded current input (time spent by the young in education rather than leisure). We consider the influence on productivity growth differentials of private thrift, public debt, the taxation of capital and savings and of policy towards human capital formation.
Keywords: endogenous growth; convergence; productivity; nontraded goods; externalities
JEL Codes: 111; 320; 430
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time spent on education (I21) | productivity growth (O49) |
| lower private thrift (D14) | reduced growth rate of human capital (O15) |
| reduced growth rate of human capital (O15) | decreased productivity growth (O49) |
| higher public debt burden (H69) | increase in relative growth rate of human capital (J24) |
| higher public debt burden (H69) | more time in education (I21) |
| subsidies to education (H52) | enhanced human capital accumulation (J24) |
| enhanced human capital accumulation (J24) | increased productivity growth (O49) |