Growth in open economies

The author surveys recent growth models that try to explain the diversity among countries in rates of economic growth. The author finds that these models can generate differences in growth rates only in the absence of international capital markets. Under these models, if there were free international capital mobility, the growth rate of consumption and GNP would quickly be equalized all over the world. The author describes a simple modification of standard preferences that eliminates this implausible equalization of growth and is consistent with the fact that the savings rate is lower in poor countries than in rich countries.