1. Chapter 8 Income Disparity Among Countries and Endogenous Growth Copyright © 2014 Pearson Education, Inc.

2. 1-2 © 2014 Pearson Education, Inc. Chapter 8 Topics Convergence Endogenous growth: a model of human capital accumulation

3. 1-3 © 2014 Pearson Education, Inc. Convergence in the Solow Growth Model If two countries are initially rich and poor, but identical in all other respects, they will converge in the long run to the same level and rate of growth of per-capita income.

4. 1-4 © 2014 Pearson Education, Inc. Figure 8.1 Rich and Poor Countries and the Steady State

5. 1-5 © 2014 Pearson Education, Inc. Figure 8.2 Convergence in Income per Worker Across Countries in the Solow Growth Model

6. 1-6 © 2014 Pearson Education, Inc. Figure 8.3 Convergence in Aggregate Output Across Countries in the Solow Growth Model

7. 1-7 © 2014 Pearson Education, Inc. Figure 8.4 Differences in Total Factor Productivity Can Explain Disparity in Income per Worker Across Countries

8. 1-8 © 2014 Pearson Education, Inc. Endogenous Growth: A Model of Human Capital Accumulation In this model, the growth rate of per capita income is determined by the efficiency with which human capital is accumulated, and the fraction of available time devoted to human capital accumulation.

9. 1-9 © 2014 Pearson Education, Inc. Consumer Behavior Consumption is equal to total wage income.

10. 1-10 © 2014 Pearson Education, Inc. Human Capital Accumulation Future human capital depends on current human capital and time devoted to training and education.

11. 1-11 © 2014 Pearson Education, Inc. Production Function

12. 1-12 © 2014 Pearson Education, Inc. Firm’s Profits

13. 1-13 © 2014 Pearson Education, Inc. Figure 8.5 Determination of the Equilibrium Real Wage in the Endogenous Growth Model

14. 1-14 © 2014 Pearson Education, Inc. Equilibrium Consumption

15. 1-15 © 2014 Pearson Education, Inc. Human Capital Growth Human capital evolves in equilibrium according to:

16. 1-16 © 2014 Pearson Education, Inc. Equilibrium Human Capital Growth Equilibrium growth rate of human capital:

17. 1-17 © 2014 Pearson Education, Inc. Figure 8.6 Human Capital Accumulation in the Endogenous Growth Model

18. 1-18 © 2014 Pearson Education, Inc. Figure 8.7 Effect of a Decrease in u on the Consumption Path in the Endogenous Growth Model

19. 1-19 © 2014 Pearson Education, Inc. Figure 8.8 No Convergence in the Endogenous Growth Model