3. According to the Solow model, if countries differed primarily in terms of their capitallabor ratios, with

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3. According to the Solow model, if countries differed primarily in terms of their capital–labor ratios, with rich countries having high capital–labor ratios and poor countries having low capital–labor ratios, then countries that have a lower real GDP per capita income should grow faster than countries with a higher real GDP per capita. (This prediction of the Solow model assumes that countries have similar saving rates, population growth rates, and production functions.) You can test this idea using the Penn World Tables at pwt.econ.upenn.edu. Pick a group of ten countries and examine their initial levels of real GDP per capita in a year long ago, such as 1950. Then calculate the average growth rate of real GDP per capita since that initial year. Do your results suggest that countries that initially have lower real GDP per capita indeed grow faster than countries that initially have a higher real GDP per capita?

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Macroeconomics

ISBN: 126164

8th Edition

Authors: Andrew B. Abel, Ben Bernanke, Dean Croushore

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