Tuesday, December 23, 2008
Why do some countries grow faster than others? Let's use the aggregate production function to compare growth between countries. Assume a fictitious production function of: Y/L = A(K/L)^.5 This function states that income per person (Y/N) is equal to a technology coefficient (A) times the ratio of the square root of kapital to worker(K/L.
If everything else is equal, than the country with the highest level of technological progress will enjoy more income, GDP per capita.
Oliver Blanchard in his textbook, Macroeconomics, states that "..high output growth leads to high productivity growth, not the other way around. [page 254, Second ed. Marcoeconomics, Prentice-Hall.] Since the USA enjoys a higher output than Cuba, I conclude that the USA has a higher rate of technological growth and will be richer than Cuba in terms of goods and services produced.
Since Cuba has access to the same technologies as the US, perhaps the difference between the two countries is foreign trade. This video explores Cuba's tourism. [Note: Real Player required]