Contribution to the theory of real convergence

The traditional neoclassical growth theory provides too optimistic predictions concerning the speed of a real convergence process. This paper tries to modify the traditional exogenous growth model without resorting to human capital or technological underdevelopment arguments. A different relative price of capital goods is seen as one of the possible explanations. If the relative price of capital goods is higher in converging economies then the speed of convergence and the rate of profit are both lower than the traditional model predicts given the same rate of gross investment. The theoretical conclusions are illustrated by means of quantitative examples and by graphical instruments.

Keywords: investment, convergence, relative prices, capital, growth theory, rate of profit