Suppose that there are two countries, X and Y, which differ in both their rates of investment

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Suppose that there are two countries, X and Y, which differ in both their rates of investment and their population growth rates. In Country X, investment is 25% of GDP and the population grows at 0% per year. In Country Y, investment is 5% of GDP, and the population grows at 5% per year. The two countries have the same levels of productivity, A. In both countries, the rate of depreciation, δ, is 10%. Use the Solow model to calculate the ratio of their steadystate levels of income per capita, assuming that a = 1/3.

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Economic Growth

ISBN: 398458

3rd International Edition

Authors: David N Weil

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