PERMANENT INTERNATIONAL PRODUCTIVITY GROWTH DIFFERENTIALS IN AN INTEGRATED GLOBAL ECONOMY

The paper analyzes the role of differences in household behavior as a source of persistent and even permanent differences between national or regional productivity growth rates when there are constant static returns to scale in production, free international capital mobility and costless international diffusion of technology. The non-tradedness of an essential input, such as human capital, in the growth process can account for permanent international productivity growth differentials. Differences in national policies affecting private saving, whether through lump-sum intergenerational redistribution or through the taxation of financial asset income, can influence the long-run growth differentials. So do the subsidization of private sector inputs and the free provision of public sector inputs in the human capital formation process.