Working Paper: CEPR ID: DP667
Authors: Sergio Rebelo
Abstract: This paper provides a survey of recent growth models that attempt to explain the cross-country diversity in rates of economic growth. It shows that these models can only generate differences in growth rates in the absence of international capital markets. With free international capital mobility they imply that the growth rate of consumption and GNP would be quickly equalized all over the world. This paper describes a simple modification of standard preferences that eliminates this implausible growth-equalization result and is consistent with the fact that the savings rate is lower in poor countries than in rich countries.
Keywords: growth; savings rate; open economy
JEL Codes: E21; F43; O49
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of international capital markets (F39) | differences in growth rates (O40) |
| capital markets liberalization (F30) | equalized growth rates of consumption and GNP globally (F62) |
| low growth rates (O40) | low real rates of return to investment (G19) |
| modification of standard preferences (D11) | lower growth rates in poorer countries (O57) |
| policy reforms aimed at increasing returns on investment (E69) | limited short-term effects in poorer nations (F69) |
| government policy + technological factors + international trade (O24) | growth rates (O40) |