Growth and Equilibrium Indeterminacy: The Role of Capital Mobility

Posted: 4 Jan 1999

See all articles by Amartya Lahiri

Amartya Lahiri

University of British Columbia (UBC) - Department of Economics

Date Written: November 1998

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. However, under some realistic parameter restrictions, the steady state growth rate is unambiguously higher for an open economy than a closed economy.

JEL Classification: F4, O4

Suggested Citation

Lahiri, Amartya, Growth and Equilibrium Indeterminacy: The Role of Capital Mobility (November 1998). Available at SSRN: https://ssrn.com/abstract=140765

Amartya Lahiri (Contact Author)

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