Neoclassical Growth in an Interdependent World

We develop a tractable, multi-country, open-economy model of neoclassical growth. We use this quantitative framework to study the determinants of growth and convergence (as a central issue in macroeconomics) and the welfare effects of international integration or disintegration (as a central issue in international economics). Trade and capital market frictions interact to determine steady-state outcomes, growth along the transition path, and welfare. Capital accumulation is a key margin through which both frictions affect welfare. Speeds of convergence for assets and capital differ and are jointly determined. Unexpected shocks have valuation effects that depend on bilateral gross capital positions.