I think I somewhat understood now finally theargument, how the speed of convergence in a simple Solow model is increased by access to world capital markets, if we are in a small, open-economy setup. Capital markets can be considered to be the “grease” for economies. They link savers to investors and create in a setup with risk-aversion a value-added due to their risk pooling abilities. In a simple Solow model, we can see how capital markets increase the speed of convergence.

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Essentially, a fundamental result of Solow is that “history does not matter“; furthermore, it also suggests that “inequality does not matter“. The Solow model predicts convergence in levels of capital stock per capita and also in GDP per capita with no long-run growth (all growth is exogeneous, e.g. due to technological progress etc.).

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Ich hab ein paar Emails bekommen, was nun die genauen Bedingungen sind – wann man im M.Sc. Economics an der LSE den Abschluss mit Auszeichnung bekommt. Ich stelle hierzu einfach mal die Informationen rein, die wir von der Schule bekommen haben.

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Market frictions or market failures are seen as one of the most common reasons, why economies in developing countries suffer from a lack of growth. Some stylized facts indicate a huge disparity in the productivity especially in the primary argricultural sector. The primary sector occupies a key place in the economy of developing countries. According to the UNDP in 1996 agriculture employed 60% of the labour force while contributing 20% of GDP of less developed countries, in comparison to 2% of the labour force contributing 2 % of GDP of developed countries. This indicates that there is a huge productivity gap across countries. Read the rest of this entry »