Economics - with CFAI Q, Capital deepening - better for developed or developing

CFA Level II Economics
#1

Hi,

Is capital deepening more important or useful or have bigger impact for developed or developing countries? Or does it depend on the formula and inputs? Thanks

#2

Developing!

What are econ formulas? No seriously I couldn’t remember one if you paid me.

#3

Capital deepening is more important for less developed countries.

Keep in mind that capital deepening has diminshing returns. For a less developed country capital is more important. As an economy grows closer to it’s steady state capital intensity becomes less important to growth.

#4

That’s what I thought. I thought it was more important for developing countries, but look at CFA textbook Vol 1 page 648, Q8 ( Economics end of Chapter Q 8)

It says country A high level of savings and investment and developed country

and then capital depeening is more important for country A

growth in labour productivity - TFP = 2.4 -0.6=1.8%

Capital deepening is Higher than the other developing countries.

Maybe that’s what it is. It’s higher but it’s more important for developing countries.

#5

but at the cfai question below.

#6

Capital deepening has diminishing marginal returns only according to neoclassical theory. Under the endogenous theory - no diminishing marginal returns.

ltj , the formula is:

Y/L = TFP * (K/L)^alfa

=> benefits of capital deepening depend on alfa too.

#7

Hi,

Can someone confirm if “low alpha benefit more from capital deepening”? (assume both countries are developing)

Thanks.

Kelly

#8

Can someone shred some light please? Thanks.