TY - JOUR AU - Barro,Robert J. AU - Mankiw,N. Gregory AU - Sala-i-Martin,Xavier TI - Capital Mobility in Neoclassical Models of Growth JF - National Bureau of Economic Research Working Paper Series VL - No. 4206 PY - 1995 Y2 - April 1995 UR - http://www.nber.org/papers/w4206 L1 - http://www.nber.org/papers/w4206.pdf N1 - Author contact info: Robert J. Barro Department of Economics Littauer Center 218 Harvard University Cambridge, MA 02138 Tel: 617/495-3203 Fax: 617/496-8629 E-Mail: rbarro@harvard.edu N. Gregory Mankiw Department of Economics Littauer 223 Harvard University Cambridge, MA 02138 Tel: 617/495-4301 Fax: 617/495-7730 E-Mail: ngmankiw@fas.harvard.edu Xavier Sala-i-Martin Department of Economics Columbia University 420 West 118th Street, 1005 New York, NY 10027 Tel: 212/854-7055 Fax: 212/854-8059 E-Mail: xs23@columbia.edu AB - The empirical evidence reveals conditional convergence in the sense that economies grow faster per capita if they start further below their steady-state positions. For a homogeneous group of economies - like the U.S. states, regions of western European countries, and the GECD countries - the convergence is unconditional in that the poor economies grow faster than the rich ones. The neoclassical growth model for a closed economy fits these facts if capital is viewed broadly to encompass human investments, so that diminishing returns to capital set in slowly, and if differences in government policies or preferences about saving lead to heterogeneity in steady-state positions. Yet if the model is opened to allow for full capital mobility, then the predicted rates of convergence for capital and output are much higher than those observed empirically. We show that the open-economy model conforms with the evidence if an economy can use foreign debt to finance only a portion of its capital, even if 50% or more of the total. The problems in using human capital as collateral can explain the required imperfection in the credit market. ER -