Growth and International Investment with Diverging Populations

Abstract

A two-country, neoclassical growth model is examined, in which the countries populations grow at different rates Individually modeled like the Solow one-sector growth model but with perfectly mobile capital between them. the two countries behave quite differently from the Solow model. The slower growing country may, if it saves enough, grow exponentially in per capita terms, and its rate of growth depends on its savings propensity. It may even acquire a permanently positive fraction of world capital. If it does, the world then behaves like Pasinetti's two-class growth model, where savings of the capitalist class (here, the more slowly growing population) alone determines the steady-state returns to capital.