Three essays on endogenous growth in open economies

Pozzolo, Alberto Franco (1999) Three essays on endogenous growth in open economies. University of Southampton, Doctoral Thesis.

Abstract

A significant subset of the theoretical literature on endogenous growth deals with open economy models, developing applications of this framework to multi-country general equilibrium models. The papers presented in this thesis try to make a contribution to this literature by uncovering new mechanisms affecting the long-run growth performance of a country when its interaction with the rest of the world is considered explicitly. Following a brief introduction, chapter 1 surveys the theoretical literature on the implications of adopting the endogenous growth paradigm within open economy models. Chapter 2 studies the microfoundations of the growth process. It shows that if research takes place simultaneously with human capital accumulation but is characterised by decreasing returns to scale and a threshold constraint on its utilisation of skilled labour, steady state growth is made dependent solely on the technology for human capital. Scale effects on growth are therefore not inevitable but depend exclusively on whether human capital production entails externalities. Policies with the potential to affect long-run growth must necessarily affect the production of human capital, for example by strengthening the cross-country linkages through which international spillovers in human capital accumulation can occur. Chapter 3 studies the consequences of the presence of geographically bounded knowledge spillovers in R&D on the optimal spatial location of economic activities when two opposite forces are present: a centripetal force, represented by the cost of transporting goods from one region to the other, and a centrifugal one, represented by a cost increasing in the number of workers living in a region. Contrary to the majority of models within the new economic geography literature, it is shown that a reduction in transport costs may be associated with more even spatial location of economic activities. The last chapter studies the effects of migrations on growth and income distribution in a model with human capital accumulation and imperfect social mobility. It shows that if the flow of migrants is correctly foreseen, the effects of labour migrations in the sending and in the receiving country only depend on the degree of social mobility: if there is a difference in the cost of accumulating human capital for the children of educated and uneducated people, migrations in the receiving country reduce total earnings of unskilled workers and increase those of skilled workers, while the opposite occurs in the sending country.

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