Explain how to predict relative income

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Reference no: EM13177309

The following show data on investment rates and output per worker for two pairs of countries. For each country pair, calculate the ratio of GDP per worker in steady state that is predicted by the Solow model, assuming that all countries have the same production function,

y = $k^{\alpha}$ , the same values of s, and that the value of $\alpha$ is 1/3. Then calculate the actual ratio of GDP per worker for each pair of countries.

For which pairs of countries does the Solow model do a good job of predicting relative income? For which pairs does the Solow model do a poor job? Briefly explain

Nigeria: Output per worker in 2009: $6.064;

Investment rate: 6.4%

Turkey: Output per worker in 2009: $29,699

Investment rate: 16.3%

Reference no: EM13177309

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