Question
Country A's savings rate(s) is 10 percent; capital's share of income is one-third; and the depreciation rate of the capital stock (K) is 8 percent.
Country A's savings rate(s) is 10 percent; capital's share of income is one-third; and the depreciation rate of the capital stock (K) is 8 percent. Assume its labor force equals 1 and that total factor productivity (TFP) equals 10.
Country B has a national savings rate of 25 percent. Country B has output per worker 7 times larger than Country A. Can the low Country A's savings rate explain the gap in output per worker between them in the steady state? (Capital's share of income, the depreciation rate, and TFP are the same across the countries.)
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