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The Solow Model in the Empirics of Growth and Trade

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Author Info
Erich Gundlach
Abstract

Translated to a cross-country context, the Solow model (Solow, 1956) predicts that international differences in steady state output per person are due to international differences in technology for a constant capital output ratio. However, most of the cross-country growth literature that refers to the Solow model has employed a specification where steady state differences in output per person are due to international differences in the capital output ratio for a constant level of technology. My empirical results show that the former specification can summarize the data quite well by using a measure of institutional technology and treating the capital output ratio as part of the regression constant. This reinterpretation of the cross-country Solow model provides an interesting implication for empirical studies of international trade. Harrod-neutral technology differences as presumed by the Solow model can explain why countries have different factor intensities and may end up in different cones of specialization.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1294.

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Length: 29 pages
Date of creation: Sep 2006
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Handle: RePEc:kie:kieliw:1294

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Keywords: Solow Model Lerner diagram

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Find related papers by JEL classification:
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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