Translated to a cross-country context, the Solow model (Solow, 1956) predicts that international differences in steady state output per person are due to international differences in technology for a constant capital output ratio. However, most of the empirical growth literature that refers to the Solow model has employed a specification where steady state differences in output per person are due to international differences in the capital output ratio for a constant level of technology. My empirical results show that the former specification can summarize the data quite well by using a measure of institutional technology and treating the capital output ratio as part of the regression constant. This reinterpretation of the cross country Solow model provides an implication for empirical studies of international trade. Harrod-neutral technology differences as presumed by the Solow model can explain why countries have different factor intensities and may end up in different cones of specialization.
- Lerner Diagram
- Solow Model