Endogenous Growth, Fertility and the Migration of Productive Factors

Abstract

Recent findings in the biomedical literature have shown that roughly three-quarters of one's cognitive abilities are an endowment from one's parents. This paper develops an open economy theory of endogenous growth in which agents make fertility and migration choices which affect the rate of transmission of human capital from parents to children. The model produces both a poverty trap as well as convergence to a common balanced growth path. We characterize the factors that determine the rate of convergence to the balanced growth path by identifying the point at which the transitional dynamics end and balanced growth begins. The model shows that the migration of productive factors has quite different implications for developing and developed countries. Developing countries may undergo a temporary or permanent output contraction and a widening of the income distribution due to labor migration. Developed countries receiving migrants will have a temporary drop in wages for native agents, but will generally grow more rapidly due to migration. The model also shows that government efficiency affects both the rate of convergence to the balanced growth path and the rate of migration of productive factors.

JEL Classification: E13, J1