Adjustment Costs in A Two-Capital Growth Model

Abstract

Numerous empirical studies observe that output growth depends positively on human capital and negatively on output. This paper demonstrates that an open-economy neoclassical growth model with large adjustment costs for human capital and moderate adjustment costs for physical capital can provide a rationale for these observations. The model can be calibrated for sufficiently slow conditional convergence. (C) 2002 Elsevier Science B.V. All rights reserved.