The Solow Model 4 – Productivity

Video 85 of 245 from the course: Development Economics
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The failure of the Solow model to duplicate the growth data quantitatively leads us to look for differences across countries in productivity. Why do some countries get less output from the same level of inputs as do other countries? The first half of the video builds on the previous three Solow videos and includes some equations but keep going! The data on productivity differences across countries is dramatic and undestanding these differences is important for development.

Related videos: The Solow Model - (Brief, no math), The Solow Model 1 – Introduction, The Solow Model 2 – Comparative Statics, The Solow Model 3 – Taking the Model to Data

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Show 1 Answer (Answer provided by Alex Tabarrok)
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Yes, you are correct that the derived values of A are for alpha=1/3. If we increased alpha this would give a larger role to capital but a smaller role to labor. Since most countries are close to US levels in human than in physical capital this would tend to mean that a higher alpha would result in more of the differences in output being explained by differences in factors of production and fewer explained by productivity differences. A good observation!

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But it´s like to discuss if wealth either make you happy or not, "social wealth" is a very subjective concept, GDP nor wealthy may not be a good measurement of happiness, but is a very concrete and easy to measure one. And in general, if you let people choose, they usually prefer to be wealthy tan poor, may them be "wrong" but the preference for wealthy is a fact and justifies the GDP as a measure.

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