Lecture 4 - Models of Economic Growth (part 2)

Flashcards about Models of Economic Growth based on lecture notes.

Solow Model Prediction

Predicts that poor countries will grow faster, assuming all other factors are equal.

Harrod-Domar Model Prediction

Does not predict that poor countries will grow faster.

Conditional Convergence

The idea that poorer countries should grow faster, contingent on factors like savings rates and population growth.

Unconditional Convergence

The idea that poorer countries will grow faster regardless of other factors.

Assumption for Conditional Convergence

Knowledge flows freely, resulting in the same technical progress for all countries.

Strengths of Solow & Growth Empirics

Strong evidence for conditional convergence and that Solow parameters are very important.

Weaknesses of Solow & Growth Empirics

Does not explain why huge differences in income exist, nor does it explain long-run growth. Technical progress is assumed.

Cobb-Douglas Production Function

Y = AKαL1−α; used to decompose the components of growth.

Growth Accounting Equation

%Δy = %ΔA + α(%ΔK) + (1 − α)%ΔL; %ΔA is the Solow residual.