Working Paper: NBER ID: w4506
Authors: Richard H. Clarida
Abstract: This paper presents a neoclassical model of international capital flows, public investment, and economic growth. Because public capital is non-traded and is imperfectly substitutable for private capital, the open economy converges only gradually to the Solow steady-state notwithstanding the fact that international capital mobility is perfect. Along the convergence path, the economy initially runs a current account deficit that reflects a consumption boom and a surge in public spending. Over time, the rate of public investment declines as does the rate of growth in the standard measure of multifactor productivity in the private sector, the Solow residual.
Keywords: international capital mobility; public investment; economic growth; productivity; cointegration
JEL Codes: F21; E22; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public capital (H54) | productivity (O49) |
| public capital (H54) | productivity (O49) |
| productivity (O49) | public capital (H54) |