Economic Growth in Small Open Economies by István Kónya

Author:István Kónya
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

6.4 The Speed of Convergence

One of the most important predictions of the Solow model is conditional convergence: GDP growth is higher when a country is further below its own long-run equilibrium position. The appropriately calibrated model can be used not only for this qualitative but also for a quantitative statement. Using the parameter values from the previous section, we can compute the additional growth that follows from relative underdevelopment.

Using Eq. (6.4) and the Cobb-Douglas specification, the growth rate of the capital stock is given by

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