Economic Growth Models Essay Example | Topics and Well Written Essays - 2500 words

Economic Growth Models - Essay standardY = AKL1-, 0where A measures the level of technology. Output per worker, y = Y/L, is thus given byy = Akwhere k denotes the cracking- agitate ratio. Capital accumulation is given by k = sy - (n + )k, 0 where s denotes the propensity to save, n 0 the exogenous rate of population suppuration, and the rate of depreciation of physical capital(Agnor and Montiel 1999, p.671). The Solow-Swan growth model predicts that growth should be uncorrelated with the ratio of national investment to total proceeds (gross domestic product or GDP). If capital market places are open, the model predicts instantaneous intersection of output per capita across countries. Convergence is achieved by capital flows from rich to poor countries and a consequence of these flows is that the ratio of national savings to GDP in each country should differ substantially from the ratio of investment to GDP since on that point is no reason to endure that countries with high s avings rates should be those with large investment opportunities. In the presence of capital market imperfections, such as the inability to borrow to finance human capital accumulation, convergence is predicted to occur much slowly (Farmer and Lahiri, 2003).Figure 1. Equilibrium in the Solow-Swan ModelSource Kalyvitis (n.d., p.6)Assuming that all regions possess comparable technology and similar preferences, and that there are no institutional barriers to the flow of both capital and project across state borders, the Solow-Swan classical growth model predicts that states would have similar levels of real per capita income in the enormous run (convergence). Across regions of a given... Assuming that all regions possess similar technology and similar preferences, and that there are no institutional barriers to the flow of both capital and labor across state borders, the Solow-Swan neoclassical growth model predicts that states would have similar levels of real per capita income i n the long run (convergence). Across regions of a given country that share such a common long-run level of real per capita income, convergence of per capita incomes is driven by diminishing returns to capital. That is, each addition to the capital stock generates large increases in output when the regional stock of capital is small. If the only difference between regional economies lies in the level of their sign stock of capital, the neoclassical growth model predicts that poor regions will grow faster than rich onesregions with trim down starting values of the capital-labor ratio will have higher per capita income growth rates. Other channels through with(predicate) which convergence can occur are interregional capital mobility the diffusion of technology from leader to follower economies the redistribution of incomes from comparatively rich regions to relatively poor regions of a federal country by its central government and flows of labor from poor to rich regions (Cashin and Sahay 1996, p.49).Agnor and Montiel (1999, p.677) note that the neoclassical growth model only predicts conditional convergence, that is a angle of dip for per capita income to converge across countries only after controlling.