Question

Consider an economy with the following Cobb-Douglas production function (with constant returns to scale):

Consider an economy with the following Cobb-Douglas production function (with constant returns to scale): Y-AKqu'\" where Y is output, K is physical capital, H is human capital, A is time-invariant total factor productivity. We assume that labour force (L) grows at an exogenous rate '1 and human capital and physical capital depreciates at the same rate 5 . a. Deriye the steady state growth rate of the economy. (7 Marks} b. What policy implications can you infer from the solution of the model? What are the challenges in implementing these policies in the context of developing countries? (T Marks} c. What are the predictions of the model in terms of convergence between poor and rich countries? Compare your results with that of the Solow model. {6 Marks} d. To what extent does the model explain growth patterns observed across countries? (You may use particular countries to illustrate your answer). (5 Marks}