One comprehensive study of contributions to growth in recent years found that the majority of growth in China over the 2005–2007 period was due to increases in the capital stock, although there was also a significant amount of growth due to increases in total factor productivity. In contrast, during these years Russia’s capital stock actually declined, and Russia’s growth was solely attributable to increases in total factor productivity.
a. Use the Solow growth model to depict graphically what happened in China.
b. Use the Solow growth model to depict graphically what happened in Russia.
c. China and Russia have very different levels of real GDP per hour worked, as well as many other differences, and China’s growth rate was considerably higher than that of Russia over this period. It also could be argued that Russia is closer to its steady-state capital stock than is China. Use a graph to illustrate and explain these differences between Russia and China.