Capital Accumulation with Interdependent Countries

What are the implications of cross-country interdependencies for capital accumulation? I tackle this question by introducing bilateral international externalities into a neoclassical growth model with n otherwise standard economies. In particular, I ask under which conditions there exists a unique steady state and when such a steady state is locally stable. I present a stability proof that uses results from “Inertia Theory”, a field in linear algebra. To my knowledge this is the first paper in economics to make use of these results. In contrast to stability results for n-sector growth models, the conditions guaranteeing local stability do not depend on the discount rate.