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Williamson_3e_IM_07 - Chapter 7 Income Disparity Among...

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Chapter 7 Income Disparity Among Countries and Endogenous Growth Teaching Goals The Solow model of economic growth provides several testable hypotheses about differences in growth experiences across countries. Identical countries should have identical growth equilibria. Therefore identical countries should converge to the same levels of capital per capita and income per capita. Differences in equilibrium growth paths require differences in savings rates, population growth rates, and levels of technology. While differences in savings rates and population growth rates may account for some differences in the equilibrium levels of income per capita, such differences cannot account for the often dramatic differences we observe in living standards throughout the world. The Solow model predicts that, given the same technology, the poorer countries should be catching up with the richer countries. This prediction is at odds with the facts. For the Solow model to explain persistent, dramatic differences in living standards, we need to believe that the poorer countries face significant barriers to the adoption of new technologies. Growth miracles may be explained by the sudden removal of barriers to technology. However, some economists have turned their attentions elsewhere to explain the apparent lack of conditional convergence. Endogenous growth models, based upon human capital accumulation, offer potentially better ways of explaining growth. Accumulation of human capital allows for the possibility of choices that affect growth over time. Endogenous growth also explains the persistent differences in standards of living in the poorer countries. Finally, the possibility of endogenous growth brings to the forefront policy choices about education. Classroom Discussion Topics There is a substantial body of economic analysis that focuses on so-called rent-seeking activities. Loosely speaking, rent seeking refers to the allocation of resources away from productive activities and redirecting resources to attempts of groups to get larger shares of what has already been produced. Encourage the students to come up with examples in which groups attempt to block the introduction of new technologies.
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