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Theories of Growth II

We want a negative relationship graphed growth vs gnp

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Unformatted text preview: in saving rate, move k upwards, but can’t go past a certain point due to diminishing returns. (move graph upwards) This in turn increases living standards since k goes up and Y goes up. Changes in population growth in the solow model (this moves straight line steeper, so higher up) deteriorates living standards. Implications, returns of capital in the poorest countries should be highest (due to diminishing returns) Looking at growth over some period If you were poor in 1870, you should’ve grown more in the 109 years that followed. We want a negative relationship (graphed growth vs. GNP and got beautifully negative linear line) What’s wrong with this? Sample bias, you are cherry=picking data, so any line you fit onto it is not telling you about anything generalizable. You are...
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