Human Capital and International Real Business Cycles

Standard international real business cycle models are generally unable to replicate the observed comovements of all the main aggregate variables: in particular, they generate low or negative international comovements in output, investment, and labour. I simulated a two-country, two-sector stochastic endogenous growth model that embodies an externality linking human capital across countries. This model is able to reproduce positive international correlations for all the main variables and is partially able to reproduce their ranking. These results are robust to changes in the entire set of parameters, as shown in a global sensitivity analysis performed by applying Canova's methodology. (C) 2000 Academic Press