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In 1861 many southern US states seceded and formed the confederacy. Treat the North and South as two separate countries,and analyzethe effects of thesecession and the Civil War using the Solow model. Suppose that the rate of population growth is the same in the North and South, but the North had a higher rate of productivity growth and a higher savings rate.
(a) What does the model predict about the long-run comparative economic per-formance (both levels of output and growth rates) of the North and South?
(b) During the Civil War, much of the capital stock in the South was destroyed, and after the war the country was reunited. Suppose that after war the whole US had the same (high) TFP growth and savings rates that were predominant in the North. What does the model predict about the comparative economic performance (both levels of output and growth rates) of the North and South after re-unication? Consider both the long run and transitional dynamics.
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