Question

Consider the Solow growth model, with the production function given by

where L = 1 in all cases

(a) Using the data below, which country has the highest, and lowest, steady-state capital stock and output? Be sure to show your calculations here.

(b) Given the predictions of the Solow growth model, what is likely driving your answer? (Consider the roles of A, alpha, s and d here!)

Table 5.1

	A	s	d	α
China	0.79	0.32	0.05	0.35
Hungary	0.95	0.20	0.04	0.40
South Korea	0.84	0.35	0.06	0.45
Mexico	1.12	0.20	0.04	0.45

Answer 1

Ak=0 we know, in steady state ie SAKA _ dk=0 or SAK* = dk or, SA = 4 ha OM) -(k) (-a) now, according to questioni (1) China A = 0.79 s = 0.32 , d = 0.05, a=0.35 1-0.35 1032)(0.79) - (K) 10.05) (5.056) 1-0.35 =k [ k= 12.0998] Y = AK* (L11-0 18 = 1.890607 (2) Aday 8-0.20 d = 0.04, d= 0.40 0.60 (0.20 (0.95) = (k)" 15/0.60_k 0.04 1 K= 13.42217 18= 2.6844 I Y = Aka

(3) South Korea A=0.84, 8=0.35, d = 0.06, L=0.45 (0.35) (0.84) (6) 0.55 (0.06 4.9 = k0.35 Ik - 17.9846/ r=AKT T8= 3.08082 4) Menico 220.45 A = 1.12 $=0.20, d=0.04 (1.12) (0.20) (10.55 0.04 0.55 15.6) = ko k= 29.9267 4:58S3 | Menico has highest capital & output stock China has least capital stock of output * higher the technological change and lower the depeneration will leads to higher value of capital stock and this having growth Effects