Question

Here are two arguments for economic growth:

Argument A: Poor countries always grow faster than rich countries.

Argument B: Technological change can only generate catch-up growth.

Which of these are consistent with the Solow Model? Explain your answer.

1. Argument A only
2. Argument B only
3. Both of them
4. Neither of them

Answer 1

Answer: D. Neither of them.
Reason: The first argument is FALSE or comes under the category of UNCERTAIN because the model predicts that the two countries (poor and rich) would grow at the same rate after a time if and if they have the same underlying characteristics such same saving, productivity, population and depreciation rates. If it is not the case, the poor countries would never converge and would actually grow slower than the rich countries.
The second argument is FALSE because Solow model suggests that technological progress has the capability of achieving permanent growth.