Capital Mobility in Open OLG Models of Neoclassical Growth

This paper explores whether the international mobility of physical and/or financial capital is essential for productive efficiency in each of three open OLG models of neoclassical growth that vary in terms of dimensional attributes. A tradeoff between capital mobility requirements and dimension has previously been established by example where, ceteris paribus , neither form of capital mobility is required with three productive sectors, only physical capital mobility is required with two sectors, and both forms of mobility are required with a single sector. This paper reconsiders that tradeoff using a generalization of the production and utility functions which introduces the potential for specialization along the transition path—an event which would imply inconsistent capital mobility requirements along the growth path for models with fixed dimension. Conditions are established under which the tradeoff between capital mobility requirements and dimension remains valid.