Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245474 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9293
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
What is a good reduced-form representation of Ramsey-Cass-Koopmans. (RCK) model? Solow's model (despite non-optimizing agents) provides predictions largely consistent with a closed-economy RCK but fundamentally differs regarding open-economy income convergence. Where RCK predicts partial income and consumption convergence between open economies Solow predicts full convergence. This paper presents, by a small modification of the savings behavior in the Solow model, a framework that matches RCK's properties in closed and open economies. The model, labeled rSolow, is analytically tractable, allowing closed-form solutions of all variables, thus makes several explicit and novel predictions. This includes how income and inequality depend on country size; that income growth will be a U-shaped function of initial income thus creating differentiated convergence; and that poor countries bene.t from higher saving but rich countries may not.
Subjects: 
convergence
Ramsey
Solow
inequality
growth
JEL: 
E10
E21
F21
F43
O11
Document Type: 
Working Paper
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