Question number 1

Think about the neoclassical growth theory as represented by the standard Solow model:

a) Which are the implications of that model as to the comparative development process between developed and developing countries? Does history and path-dependence play any role in this theoretical framework?

b) How do financial liberalization and international capital flows influence the relative dynamics of developing and developed countries in the context of the Solow model?

c) Explain which are the main weaknesses of the Solow model when applied to the context of economic development both from a theoretical and empirical point of view how mainstream economic theory try to address them

d) Now think about to the so-called Balance-of-Payment constrained growth theory. Take into account, in particular, the so-called Thirlwall law as captured by equation (1) below: