Part A
The authors examine the implications of the Solow model for convergence in the living standards, that is, for whether rich countries tend to grow slower than poor countries. The findings of the study indicate that the augmented Solow model can forecast accurately the rate of convergence of different countries while keeping the growth of population and capital accumulation constant. The authors states that two variables, that is, rates of saving and population growth of a country, can be used to determine the country’s steady-state level of income per capita. This model predicts that higher the rate of population growth of a country, poorer is the country and on the other hand, higher the rate of saving, richer is the country (Edward Gamber, 2006). Overall, the findings reported in this paper shows doubt on the recent style among the economists to abandon the Solow model growth in the favor of endogenous-growth models which assume steady or growing returns to scale in capital.
The author argues about the fact that the predictions of the Solow model are firstly to an approximation, consistent with the evidence and by examining the current data for a large set of countries we also find that saving and population growth affect income the same way the Solow model predicted. Moreover, more than half of the country variation in income per capital can be explained by these two variables alone. And also it can be added that even the Solow model can predict the direction of effects of savings and population growth, it is unable to predict the magnitude of the same.
Part B
The pivotal changes that must be made to the Solow model are inclusion of the accumulation of human as well as physical capital. The exclusion of the “human capital” from the textbook version of the Solow model can potentially explain the two reasons why the population growth and estimated