Suppose that all economies have the same value
for capital’s share of income. A developed country
has a saving rate of 28% and a population
growth rate of 1% per year. A less-developed
country has a saving rate of 10% and a population
growth rate of 4% per year. In both countries,
the rate of labor-augmenting technological
change is 2% per year, and capital depreciates at
4% per year. Use this information and the Solow
model to explain the following.
a. Are the countries likely to converge to the
same level of real GDP per capita?
b. Are the countries likely to converge to the
same growth rate of real GDP per capita?