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The Solow model in the empirics of growth and trade

  • Erich Gundlach

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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Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 23 (2007)
Issue (Month): 1 (Spring)
Pages: 25-44

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Handle: RePEc:oup:oxford:v:23:y:2007:i:1:p:25-44
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