Question

1. Say we have two economies with similar levels of technology, institutional quality, natural resources, physical capital stock, and human capital. Country A has a lower savings rate than Country B. Which country do you expect to grow (in terms of GDP per capita) faster?

2. Say we have two economies with similar levels of technology, institutional quality, natural resources, human capital, and savings rates. Country A has a lower physical capital stock than Country B. Which country do you expect to grow (in terms of GDP per capita) faster?

Answer 1

1)

Saving is precondition for economic development and growth. Saving becomes investment and investment made in economic and productive activities increases growth rate of economy.

Thus, we can conclude here that a country with higher rate of saving will experience higher level of economic growth.

2)

Physical capital is used to produce further goods and services. More goods and services increase growth rate of economy.

Thus, Country with lower physical capital stock is expected grow at lower rate.