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The Solow model in the empirics of growth and trade

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  • Erich Gundlach

Abstract

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 cross-country growth literature that refers to the Solow model has employed a specification where steady state differences 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 interesting 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.
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  • Erich Gundlach, 2007. "The Solow model in the empirics of growth and trade," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 23(1), pages 25-44, Spring.
    • Handle: RePEc:oup:oxford:v:23:y:2007:i:1:p:25-44
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    File URL: http://hdl.handle.net/10.1093/oxrep/grm002
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    More about this item

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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