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Summary Unconditional Convergence Hypothesis
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An easy to understand summary on Unconditional Convergence Hypothesis of Solow Growth Model.
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In the Unconditional Convergence hypothesis, supposedly you have twocountries one is a rich country, other is a poor country. The rich country has
a higher amount of capital stock with it, and the poor country has a lower
amount of capital but the savings rate, population growth rate, depreciation
rate, and technological progress are all that are the same in both.
The assumption now is that because a poor country has a lower capital
stock, its marginal product of capital is going to be higher while a rich
country has a larger capital stock, its marginal product to capital is going to
be lower.
Because the poor country has a higher marginal product of capital, the
growth rate in a deeply poor country is going to be higher. The rich country
has a lower marginal product of capital so a rich country's growth rate is
going to be lower and this is going to create a catching-up effect.
The poor country will grow faster than the rich country and eventually, both
of them are going to converge towards the same steady-state level. This is
what unconditional convergence is.
In the case of unconditional convergence, the savings rate, population
growth rate, depreciation rate, and technological progress are all the same,
but countries have different capital stocks in the economy. The rich country
has a higher amount of capital stock with it, and the poor country has a
lower amount of capital.
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