Solow Long Run Growth Model

Solow Long Run Growth Model

  • Submitted By: Dantedds
  • Date Submitted: 08/20/2011 2:54 AM
  • Category: Business
  • Words: 420
  • Page: 2
  • Views: 497

Introduction (Background)

According to Solow long run growth model, the convergence hypothesis in macroeconomics represents that countries with relatively lower output per capita tend to grow faster than those with relatively higher output per capita, resulting to converge to same steady state in long run if their production function is same and they have same steady state. However even though the theory of convergence has logical demonstrations and evidences, it seems to be restricted within geographical location or specific countries. For example, many of Africa countries are still suffering famine, poverty and economic problem. This essay will discuss what factors obstruct relatively poor countries to converge to rich countries and what policies of both poor countries and rich countries can improve poorer countries’ sustained growth.

Q1. The factors of the convergence failure in living standard of relatively poor countries

Living standard can include output per capita, level of education, health, environment, equality and so on. However, living standard is usually referred as real output per capita because people in countries that have higher output per capita tend to have higher living standard.
Firstly, the most important factor that makes the failure of convergence is unstable political system. According to , politics and economics is strongly related each other. It is because politics plays very important roles in distributing resources, physical capital, and human capital and so on in a country. Many of poor countries experience civil war, military dictatorship and corruption caused by unstable political system. These always imply possibility such as compulsory conscription of human capital against civil war, demonstration against military dictatorship and corruption. Especially, civil war can destroy current or/and future potential human and physical capitals such as infrastructures, high-educated people. In addition, it causes largely a...

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