Answer to Question #161049 in Economics of Enterprise for Jojo Mak

Question

What does it mean by “convergence” among countries? On what conditions do countries converge at their GDP level? Please explain using the Solow-growth model.

Answer 1

Convergence is a convergence of countries in terms of the level of development, due to a decrease in the growth rate of capital-labor ratio with an increase in its value.

Capital gains equal to the difference between savings and depreciation are divided by the population.

R. Solow's neoclassical model of economic growth examines the role of individual growth factors from the standpoint of a quantitative approach. Each factor provides a corresponding proportion of the product produced.

The figure shows the Solow economic growth model, where s is the saving rate, n is the population growth rate, g is the rate of technological progress, d is the rate of capital outflow, k is the capital-labor ratio, y is labor productivity.