Title

Neoclassical Growth in an Interdependent World

Author(s)

Benny Kleinman Benny Kleinman (University of Chicago)

Ernest Liu Ernest Liu (Princeton University)

Stephen J. Redding Stephen Redding (Princeton University)

Motohiro Yogo Motohiro Yogo (Princeton University)

Abstract

We generalize the closed-economy neoclassical growth model (CNGM) to allow for costly goods trade and capital flows with imperfect substitutability between countries. We develop a tractable, multi-country, quantitative model that matches key features of the observed data (e.g., gravity equations for trade and capital holdings) and is well suited for analyzing counterfactual policies that affect both goods and capital market integration (e.g., U.S.-China decoupling). We show that goods and capital market integration interact in non-trivial ways to shape impulse responses to counterfactual changes in productivity and goods and capital market frictions and the speed of convergence to steady-state.

Creation Date

2024-01

Section URL ID

Paper Number

URL

https://economics.princeton.edu/working-papers/neoclassical-growth-in-an-interdependent-world/

File Function

Jel

F10, F21, F43, F60

Keyword(s)

Capital investment, Economic growth, Gravity equations, International trade

Suppress

false

Series

13