Tesu Macroeconomics Assignment 7

1. Developing countries have the potential to grow at a faster rate than developed countries as they can replicate production methods, technologies and institutions currently used in developed countries, this is the basis of the catch up effect. This addition of capital allows them to rapidly increase productivity and incomes in order to achieve a higher growth rate than developed countries and therefore converge in the long-term. While this is true, it may also be difficult for some countries to achieve this. South Sudan currently has the lowest per capita income in the world. South Sudan is hindered by many things which we will discuss. One of the major things that is actually standing in South Sudan’s way is its differing opinions from countries surrounding them such as Sudan. Tension in this area of the world inhibits many of these Middle Eastern countries as there are often wars which cause destruction that reduces the amount of resources and labor available to these countries. Without receiving help from other countries, Sudan will have a difficult time catching up, although it’s not entirely impossible. In order for South Sudan to realize per capita growth over time, it would have to do several things. The ultimate goal is to promote or improve productivity, as per capita growth is extremely dependent on the level of productivity. This is accomplished in several ways, starting with an increase in capital, both physical and human. Physical Capital is the stock of equipment and structures needed to efficiently produce goods and services. Human Capital is the workers knowledge and skills. These two forms of capital are vital for a country to have a chance to experience positive growth through the catch up effect. By establishing a program where they are dedicated to improving infrastructure (utilities and roads for example) and education (government assistance for higher learning), these low income countries can improve their capital. Countries must invest in...