Global Growth class-new - Growth,Convergenceand Inequality...

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Click to edit Master subtitle style Growth, Convergence and  Inequality Week 4
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22 Growth Questions n What factors caused some countries to grow fast and  others to grow slow over periods such as 1960 to  2000? In particular, why did the East Asian countries  do so much better than the sub-Saharan African  countries? How did countries such as the United States and  other OECD members sustain growth rates of real  GDP per person of around 2% per year for a 
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33 Global Economic Growth  n Convergence and Conditional Convergence n Cross-Country Growth in the Long Run n Total Factor Productivity n Geography, Institutions, and Growth n The case of Africa
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44 Output per capita (1985 US $) Why the different levels of performance?
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55 1. CONVERGENCE n Why did the first gap narrow and the  second gap widen?
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66 Explaining the differences n Output per worker is a function of  Capital Labor , and  Total Factor Productivity . n Capital:  building, machines, computers, etc. n Labor:  number of workers, hours worked,  etc. n TFP:  education, skills, know-how, etc. n Mathematically:
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77 CONVERGENCE n Solow’s growth model production function: Y/L = F(K/L,1,A) y = A F(k)    We assume that all countries have the same  production function and access to technology. Also  the economy is a closed economy (S = I). n If low level of capital per worker and low level of  income per worker, then poor country
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88 1. CONVERGENCE
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99 CONVERGENCE -  transition for capital per worker,  k , as it rises from its  initial value,  k (0), to its steady-state value,  k* - k*  works like a target or magnet for  during the transition.   -  k*  depends on the saving rate,  s , the technology  level,  A , the population growth rate,  n , the depreciation  rate, , and the initial level of labor input,  L (0). We can summarize these results in the form of a function 
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1010 Economy 1 starts at capital per worker  k (0)1 and economy 2 starts at  k (0)2. 
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1111 CONVERGENCE n One of the outcomes of the Solow model is that if you  have two countries that have the same steady-state, the  poorer country should grow more quickly than the  richer country.  n Poor countries are further away from the steady-state and thus  add more to capital per capita in the next time period. n
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Global Growth class-new - Growth,Convergenceand Inequality...

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