7 as ive stated in class there has been growth in the

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Unformatted text preview: effect on growth is stronger. Chapter 12 – additional material 1. Empirically, there is a positive relationship between investment and economic growth. And a negative relationship between population growth and economic growth. 2. The evidence shows that most rich countries are growing uniformly (look at the income distribution of the US). However, the evidence is mixed for poor countries: some grow (like China), some are stuck in time (like Brazil), some get worse over time (like Nigeria). 3. Diminishing returns imply that as one input increases, output will increase less and less. Recall the example I gave in class about an office with 5 workers and 100 computers and the increase in production that occurred by adding the 101st computer. 4. The catching- up effect and absolute convergence are synonyms. They imply that, other things equal, poor countries will grow at higher rates than rich countries because of diminishing returns and, hence, will converge. 5. Absolute convergence is not supported by data, however, because other things are not equal (countries have different levels of technology, human capital, savings rates and population growth). You can see this in the scatter plot in the set of slides (unconditional convergence, slide 16). If there was evidence of convergence, you should expect a negative relationship between initial levels of GDP on the horizontal axis (which proxies for a country being poor or rich) and growth rates of GDP on the vertical axis. But there is no clear relationship between the two. 6. Relative or conditional convergence implies that, once we control for different levels of technology, human capital, savings rates and population growth (i.e., in the case of countries that are similar), poor economies will indeed grow faster than rich economies. This is supported by the data (see slides 18, 19). There is a negative relationship between growth rates and initial levels of GDP. 7. As I’ve stated in class, there has been growth in the last 150 years. Living standards have improved considerably and we all have benefited from it. However, this benefit has not...
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This document was uploaded on 02/20/2014 for the course ECON 1002 at University of Minnesota Duluth.

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