Review questions L4 Flashcards
- Please explain what is meant by the notion “conditional convergence” and clarify how
it differs from “unconditional convergence”.
Conditional convergence states that countries with initial lower levels of income or productivity (low-income or developing countries) tend to grow faster than those with initially higher levels (high income countries). The idea is that the poorer countries will eventually close this “gap” between them and richer countries. The conditional convergence hence takes the starting point of a country into account, conditioned on measures like savings, population growth, educational growth and so on.
Unconditional convergence indicates that all countries converge towards the same steady state growth rate regardless of initial income and productivity. This theory assumes that all countries are equally capable of reaching the same growth rate due to diminishing marginal product to capital
- Please define and explain the development and growth accounting, respectively.
The growth accounting considers the relative importance of factor accumulation and productivity growth, so that is how measures like education, physical capital and TFP affects the overall growth in GDP (output) in a country. Thus, this measure qualifies the source of economic growth, by decomposing an output function (Cobb-Douglas) into factor accumulation and productivity growth.
Development accounting, on the other hand, compares productivity across countries, and further investigates to what extent the variation in output pr worker among countries is explained by differences in productivity. Here, the output function is decomposed to break down a country’s income into capital accumulation, labor force growth, productivity gain and differences in TFP. Thus, this measure helps understand why some countries are richer than others, by comparing differences in outputs from the different factors.
3 + 4: Growth and development accounting
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