What is conditional convergence in Solow model?

If countries differ in the fundamental characteristics, the Solow model predicts conditional convergence. This means that standards of living will converge only within groups of countries having similar characteristics.

What is the AK model of economic growth?

This model shows constant marginal product to capital (as MPk = dY/dK=A) indicating that long run growth is possible. Thus, AK model is a simple way of illustrating endogenous growth. Assuming a closed economy, the savings are equal to investment under conditions of full employment.

What is the AK model in macroeconomics?

The model results in a production function of the form Y = AK, in which the marginal product of capital is equal to the constant A. The AK model predicts that a country’s long-run growth rate will depend on economic factors such as thrift and the effi ciency of resource allocation.

Why AK model is endogenous growth?

The simplest version of an endogenous model is the AK model which assumes constant exogenous saving rate and fixed level of technology. The stickiest assumption of this model is that the production function does not include diminishing returns to capital. This assumption means the model can lead to endogenous growth.

What is meant by conditional convergence?

conditional convergence in American English noun. Math. the property of an infinite series that converges while the series formed by replacing each term in the given series with its absolute value diverges; the property of an infinite series that converges when the order of the terms is altered.

What is conditional convergence in economics?

What is conditional convergence? Conditional convergence is the tendency that poorer countries grow faster than richer countries and converge to similar levels of income. However, there’s a caveat. This convergence is conditional on institutions and other factors being similar.

What is the difference between Solow model and AK model?

But the two models differ in respect to the exogeneity of δ and Y/K: In the AK model, Y/K is exogenous and γ is endogenous. By contrast, in the Solow model, γ is exogenous and Y/K is endogenous. Hence: In the Solow model, a rise in the saving rate leads to a lower average productivity of capital in the steady state.

What are the features of endogenous growth model?

Endogenous growth theory maintains that economic growth is primarily the result of internal forces, rather than external ones. It argues that improvements in productivity can be tied directly to faster innovation and more investments in human capital from governments and private sector institutions.

Why there is no diminishing returns in AK model?

AK model proves that with the help of the factor accumulation alone (without diminishing returns) continuous growth of per capita income can be generated. This the reason diminish returns does not takes place in AK model.

What is endogenous and exogenous growth model?

The endogenous growth model for instance states that economic factors or internal factors influence economic growth. The exogenous growth model maintains that to grow an economy, factors or forces outside of the economy must be considered.

How do you find conditional convergence?

If the positive term series diverges, use the alternating series test to determine if the alternating series converges. If this series converges, then the given series converges conditionally. If the alternating series diverges, then the given series diverges.

Why does conditional convergence occur?

The conditional convergence hypothesis states that if countries possess the same technological possibilities and population growth rates but differ in savings propensities and initial capital-labor ratio, then there should still be convergence to the same growth rate, but just not necessarily at the same capital-labor …