The authors have studied the Solow Model of economic growth, which assumes the neoclassic production function of decreasing returns to capital. Solow proposed the model while considers the rate of saving and population growth as exogenous and demonstrated that the countries reach the steady state level of income per capita. However, the classical Solow model is not able to explain cross-country variation in the standard of living. The Solow model predicts the effect of saving and population growth on economic growth qualitatively but not quantitatively .The authors have augmented the Solow model with accumulation of Human capital as well as physical capital. The authors have analyzed empirical data of year1965-1985 with the textbook Solow model & augmented Solow Model for three different samples including Non-oil, Intermediate and OECD. The authors demonstrated that augmented Solow model is still valid to explain the international variation in income per capita. The authors advocate the conditional convergence hypothesis, where per capita incomes of countries which have similar economic conditions converge to one another in the long-run independently of their initial condition. The authors propose that convergence cannot be expected in the Solow growth model because different countries reach different steady rates. Non-convergence can be attributed to the different steady rates of the countries which is determined by the accumulation of human and physical capital and
Y=A*K, Y is the output, A is the productivity (mainly dependent on technology), K is the capital. From the definition we know the function represents constant return to scales. Therefore there would be no convergence between the growths of developed countries and developing countries, with different starting capital and productivity.
This research paper is an empirical investigation comparing the economic growth of Australia, China and the United States. It covers four topics which include the production model, the Romer model’s growth rate
Dr. Jekyll and Mr. Hyde are not that similar. They are both masculine. They have the same mind that shares experiences: “My two natures had memory in common, but all other faculties were most unequally shared between them (The Strange Case of Dr. Jekyll and Mr. Hyde, pg. 114)”. They both share Dr. Jekyll’s money: “[He]…came back with the matter of ten pounds in gold and a cheque for the balance on Coutts’s, drawn payable to bearer and signed with a name I can’t mention…( The Strange Case of Dr. Jekyll and Mr. Hyde, pg. 41)”. Dr. Jekyll and Mr. Hyde share living quarters, the servants, the laboratory and the cane: “…[Mr. Utterson] recognized it for one that he had himself presented many years before to Henry Jekyll (The Strange Case of Dr. Jekyll and Mr. Hyde, pg. 61)”. Dr. Jekyll and Mr. Hyde have very general likenesses, while the differences are more significant.
10. Labor force growth rates tend to fall as a country becomes richer. Compared with the standard Solow growth model, this would lead to: a. b. c. d. Higher saving rates in rich countries than in poor countries. Greater income differences between rich and poor countries. Smaller income differences between rich and poor countries. Lower depreciation rates in
According to the Solow Growth Model, all countries will eventually converge to their long run steady state. If we consider the usual assumptions, of countries producing the same goods with the same constant returns to scale production technology, using (homogenous) capital and labour as factors of production, differences in income per capita income will reflect differences in per capita capital. Therefore, essentially if capital is allowed to flow freely, new investments should occur only in the poorer economy. However this is certainly not the case in reality. Most of the net capital flow in the past four decades has been north-to-north (rich countries investing in other rich countries), rather than north-south (rich economies investing
However, this pattern was only observed in select countries, not in a broad sample. Romer and another economist Robert Lucas wrote papers defending models of growth that differ from the neoclassical model , which failed to properly explain convergence. Namely, the assumptions that technological change is exogenous and that the same technology is available in all countries were dropped. Growth was explained by endogenous factors, such as investment in human
Eyeballing any cross sectional data on growth across countries shows that countries grow at different rates. Many theories try to explain this phenomenon with emphasis with capital accumulation being one of them. I will start by developing the standard neoclassical growth model as developed by Solow(1956)[1]. I will then proceed to discuss the extensions that have been made to this basic model in an attempt to better understand actual growth figures, for e.g. the standard neoclassical model cannot explain the magnitude of international differences in growth rates. Mankiw[2] points out that “the model can explain
Economic growth is defined as an increase in the GDP and standard of living over a period of time, and as indicated by those numbers, our GDP has been pretty steady, which is why the economy is not growing. Some people may not be able to experience economic growth. For example, if a person inherits a house from a family member that passed away, they might not be able to actually enjoy that increase in the standard of living because they might experience property tax. Another indicator of economic growth is an ability to increase a person’s leisure time. With an increase in more efficient technology, output time can increase. Meaning that when it previously took eight hours to complete the day’s quota, it could now take four hours, and the workers are left with four hours to do something else, but still make the same amount of money. A third indicator of economic growth is a change in the social norms of the country. In 1920, women were given the right to vote. In the 1970’s, women started working.
The Solow model indicates that countries with high population growth (with no change in capital) will have lower levels of output per person. In the model therefore, population growth capital per worker and output per worker are constant. Correspondingly, the aim of the Solow Model becomes clear: it is to show that an economy will incline towards a long-run equilibrium K/L (k) ratio at which Y/L (y) is also in equilibrium, so that Y, K and L all grow at the same rate, that is n. Ultimately the model predicts long run equilibrium at the natural
Economic growth in a city, state, or country is characterized by steady growth in the productive capacity of the economy or a growth of national income (Fernandez- Villaverde, 2001). The Gross Domestic Product (GDP) growth rate is most commonly used to measure economic growth because it is a reflection of the total change in a country’s national output (Filardo, 1999). This growth rate is used to predict the direction of an economy. A positive growth rate indicates a positive economy with more jobs, consumption and income while a negative growth indicates an economic decline (Filardo, 1999). Economic growth constitutes superior productivity, prosperity, and increased capital per capita resulting in a higher quality of living.
The growth models considered in Chapter 2 are highly aggregative and some economists (Lewis 1954; Fei and Ranis 1961, 1964; Jorgenson 1961, 1967; Dixit 1968, 1971; Kelly et al. 1972) began to analyse the problems in terms of two sectors, namely agriculture and industry. Briefly, the socalled traditional noncapitalist agricultural sector is supposed to be unresponsive to economic incentives and here the leisure preferences are imagined to be high; production for the market does not take place and producers apparently do not follow profit-maximizing rules: ‘disguised’ or open unemployment is supposed to prevail throughout the rural sector and indeed the marginal productivity of labour is expected to be
The rest of the paper is organized as follows. Section 2 discusses the theoretical and empirical issues on globalization and economic growth, section 3 looks at Nigeria in the global world. The model and the estimation techniques of the study is stated in session 4 , section 5 looks at the discussion of the results of the estimated model while section 6 focused on the policy implication and concluding remarks.
“The malady of many underdeveloped economies can be diagnosed as a stable equilibrium level of per capita income at or close to subsistence requirements. Only a small percentage, if any, of the economy’s income is directed towards net investment. If the capital stock is accumulating, population is rising at a rate equally fast i.e. thus the amount of capital equipment per worker is not increasing. If economic growth is defined as rising per capita income, these economies are not growing. They are caught in a low-level equilibrium trap.”
This can be measured by the following formula; Per capita nominal GDP = Nominal GDP / Population, Per capita real GDP = Real GDP / Population. Seven factors determine economic growth. Natural resources such as land, mineral deposits, waterways; climatic conditions provide an essential foundation to economic growth. Combined with the other resources of capital, labor and enterprises, natural resources can be developed and organized to increase the productive capacity if the nation. Consequently the quality and size of the labor force is a major determinant of economic growth. Education and vocational training are essential the growth potential of a nation. The promotion of education and job training schemes increase the knowledge, skills and flexibility of the workforce that contributes to potentially higher levels of productivity and efficiency. Whether from natural increase or immigration population growth can cause a higher level of economic growth. An increasing population requires increased public spending on housing, education and other social needs while businesses expectations of
This paper defines and explains endogenous growth theory. The paper will try to explain what endogenous growth theory is, the criticisms of endogenous growth theory and the policy