Question
A Zambian advisor points out that South Africa has a national savings rate of 25 percent. He then argues that Zambia's low savings rate is
A Zambian advisor points out that South Africa has a national savings rate of 25 percent. He then argues that Zambia's low savings rate is the reason that South Africa has output per worker 7 times larger than in Zambia. Can the low Zambian savings rate explain the gap in output per worker between Zambia and South Africa in the steady state? (Assume that capital's share of income, the depreciation rate, and TFP are the same across the countries.) Show your calculations to explain your view.
Hint if you couldn't answer to C.a, set the output per worker in Zambia at the steady at an arbitrary value (say 3.14) and answer to this question given the chosen value.
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