ECON 6280 Study Guide - Midterm Guide: Marginal Product, Diminishing Returns, Capital Flight
Document Summary
Precautionary savings (poor save to lower risks) -> converge, inequality (rich in the country will save a lot) -> convergence, capital flight (the rich of poor countries don"t want to save in their own countries) -> divergence. Endogenous saving rate saving rate induced by the already existing conditions (e. g. due to increasing returns of technological change) Solow model save and invest, but all countries eventually converge to the steady state: poor countries grow faster due to diminishing returns: in the long-run, there is no sustained growth unless there is technological advancement. Diminishing returns the marginal returns on every extra unit of investment decreases: capital is marginally more productive for low levels of capital. Crs (constant return to scale) production function the output increases by the same proportion that inputs change (not diminishing returns) Lewis 2-sector model focuses on labor transfer to increase output and employment in the modern sector.
