Growth and equilibrium indeterminacy: the role of capital mobility

The paper presents a human capital driven endogenous growth model which, in general, permits a multiplicity of equilibrium balanced growth paths. It i s shown that allowing for perfect capital mobility across countries increas es the range of parameter values for which the model permits equilibrium in determinacy. As opposed to the closed capital markets case, simple restrict ions on preferences are no longer sufficient to eliminate the indeterminacy . Intuitively, under perfect capital mobility agents are able to smooth con sumption completely. This induces an economy with open capital markets to b ehave like a closed economy with linear preferences thereby increasing the possibility of equilibrium indeterminacy.