CAS EC 102 Lecture Notes - Lecture 8: International Trade, Marginal Product

• School: Boston University
• Department: Economics
• Course: CAS EC 102
• Professor: Bruce Watson

Document Summary

Definition: poor countries will grow faster than richer countries, and eventually catch up in terms of gdp per capita. Why we would expect convergence: technology transfer, poorer countries can attract more capital. Because investors get higher returns on investment and diminishing marginal product of capital. Low k stock -> high mpk -> high returns to investment -> higher domestic saving and higher investment by foreigners. What the theory predicts: if you"re poorer you should grow faster, if you"re richer you should grow slower. Poor countries will absolutely catch up: contingent convergence: Some countries may catch up but it has to be contingent on something else: three alternative approaches to development. Environmental approach: embodied in the article by sachs. Sachs believes that the country"s geography is the key factor that determines whether they will grow. Some countries are land locked and don"t have the ability to produce goods. Some places are subject to certain diseases.