Solow model
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1. Does the structure of the global economy allow poor countries to catch up with rich ones? Is the Solow model a useful framework for understanding whether poor countries tend to catch up with rich ones? How do Sachs and Rodrik differ regarding the policies that are most likely to promote catching up?
2. To what extent is the Solow model a useful framework for understanding the growth of nations?
3. Compare and contrast Sachs and Warner vs. Rodrik on the sources and best means of attaining economic growth.
4. What does, and what doesn't, the Solow model tell us about the sources of economic growth and the best policies for attaining high per capita incomes?
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Solution Summary
The Solow model is addressed.
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Solution:
The Solow model is helpful in understanding per capital variation & determination of growth rates. According to Solow, there are two reasons why income per capita is lower in some countries than others. They are,
1. Differences in capital (physical or human) per worker.
2. Differences in the efficiency of production.
So countries with higher capital per worker also tend to have higher production efficiency. Sustained growth in living standards is due to technical progress & the rate of technical progress is exogenous. Thus the structure of the economy is important in determining the growth.
Solow model explains that by international convergence, there is a tendency for the living standards of the countries of the world to converge over time. Or, equivalently, it refers to the poor countries catching up economically with rich ones over time. In order for convergence to occur, the poor countries must experience higher raters of growth than richer ones.
Solow model did not allow any room for trade policy & exogenous technological progress is the primary determinant of economic growth. While Sachs and Rodrik gave emphasizes on the trade & openness of the economy that promotes the growth of the poor countries.
2. To what extent is the Solow model a useful ...
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