From Which Side to the Steady State of the Augmented Solow Model? The Role of Country-Specific Total Factor Productivity Growth Rates
Hollanders, Hugo and Ziesemer, Thomas (1999). From Which Side to the Steady State of the Augmented Solow Model? The Role of Country-Specific Total Factor Productivity Growth Rates. UNU-MERIT Research Memoranda. UNU-MERIT.
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Sub-type Working paper Author Hollanders, Hugo
Ziesemer, ThomasTitle From Which Side to the Steady State of the Augmented Solow Model? The Role of Country-Specific Total Factor Productivity Growth Rates Series Title UNU-MERIT Research Memoranda Volume/Issue No. 3 Publication Date 1999 Publisher UNU-MERIT Language eng Abstract The human capital-augmented Solow model (Mankiw et al., 1992) has been criticized by Cho and Graham (1996) by stating that half of all countries converge to their steady state from above, i.e. from income levels above those obtained in their steady state. This is clearly at odds with the general idea that countries approach their steady state from a backward position. In this paper we will argue that this result is primarily due to the assumption of an identical exogenous rate of technological progress for all countries. Once different rates of technological progress are introduced into the model, the number of countries approaching their steady state from above is reduced to a number more in line with what the augmented Solow model would predict. However, for a sample consisting of 98 non-oil countries, the assumption of constant returns to scale has to be rejected. For the non-oil sample our analysis thus both supports and challenges the human capital-augmented Solow model. For a more limited sample consisting of 22 OECD countries, the results clearly support the augmented Solow model by both reducing the number of countries converging from above their steady state to zero and by accepting the assumption of constant returns to scale. Copyright Year 1999 Copyright type All rights reserved -
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