Average annual rates of growth:

Country A Country B

Labour force (L) 2.5% 4.0%

Capital stock (K) 3.5% 3.5%

Share of labour income in GDP 2/3 2/3

a. Assuming a constant state of technology, which of these two countries will have the faster rate of growth in total real GDP?

b. Which of the two countries will have the faster rate of growth in per capita real GDP?

c. What differences, if any, do you see in the growth rates of the capital to labour ratios in the two countries?

d. Explain the reasons for the differences in total real GDP growth rates you have found?

e. Which country is in the catch-up phase of growth? Which country is at the cutting-edge of growth? What can the laggard country businesses do to catch up to the businesses in the lead country? What can the cutting-edge country companies do to put a distance between emerging market firms catching up and generate/sustain comparative advantage in their line of businesses? Explain.