Question

Bradford Delong: Economic Convergence Assume that two countries produce only with labor and capital and have...

Bradford Delong: Economic Convergence Assume that two countries produce only with labor and capital and have the same savings and depreciation rate. Further assume that there is no population growth or innovation. One country has a low current level of capital per worker, the other one has a high level of capital per worker. Neither one of them has reached its steady state equilibrium yet. Use a suited diagram drawn from the Solow/Swan model to illustrate this situation. Which country will grow faster and why?

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Answer #1

both countries have same level of steady state level of capital, output and consumption per workers. Further, country with low level of capital will see higher economic growth.

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