Solow’s Convergence Process (with capital mobility)

• Solow’s Convergence Process (with capital mobility)

• • • Poorer countries,
    • • have higher marginal product of capital (higher real interest rate),
      • experience net capital inflows (have current account deficits),
      • have output and productivity grow rates, etc.
  • → Uncertainty about growth potential
  • • • Potential real GDP growth rates,
      • • China, 10%;
        • Turkey, 6-7 %
        • US, 3%
      • → Unstable Phillips curve and Taylor’s Rule