Income Convergence in an Endogeneous Growth Model

Abstract

An endogeneous growth model is developed that produces convergence in per capita income and growth rates of output. Agents have identical preferences and access to identical technologies of production and investment, but differing levels of initial human capital. A spillover effect of human capital in the investment technology provides below-average human capital agents with a higher rate of return on investment than above-average human capital agents. Thus below-average human capital agents grow faster than above-average human capital agents. This model explains income convergence of the developed world, regional income convergence within the United States, and intergenerational mobility.