Journal Article

The Solow model in the empirics of growth and trade

Erich Gundlach

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 23, issue 1, pages 25-44
Published in print March 2007 | ISSN: 0266-903X
Published online January 2007 | e-ISSN: 1460-2121 | DOI: https://dx.doi.org/10.1093/oxrep/grm002
The Solow model in the empirics of growth and trade

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  • Economic Growth and Aggregate Productivity
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Translated to a cross-country context, the Solow model (Solow, 1956) predicts that international differences in steady-state output per person are due to international differences in technology for a constant capital–output ratio. However, most of the empirical growth literature that refers to the Solow model has employed a specification where steady-stateifferences in output per person are due to international differences in the capital–output ratio for a constant level of technology. My empirical results show that the former specification can summarize the data quite well by using a measure of institutional technology and treating the capital–output ratio as part of the regression constant. This reinterpretation of the cross-country Solow model provides an implication for empirical studies of international trade. Harrod-neutral technology differences, as presumed by the Solow model, can explain why countries have different factor intensities and may end up in different cones of specialization.

Keywords: Solow model; Lerner diagram; O40; F11

Journal Article.  8430 words.  Illustrated.

Subjects: Economic Growth and Aggregate Productivity ; International Trade

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