Examine the effect of population growth in the Solow model of economic growth. Discuss how the Solow model could be used to explain poverty traps in developing nations

Population growth modifies the basic structure of the Solow growth in three ways:

1. Achieving Steady State:

Prima facie, population growth enables us to explain sustained economic growth. In the presence of population growth, capital per worker and output per worker remain constant in the steady state situation. Since the number of workers is increasing at the rate n, total capital and total output must also grow at the same rate if a steady state situation is to be maintained.

Thus, population growth can ex­plain sustained growth in GDP. However, since GDP per worker remains constant in the steady state, population growth cannot explain im­provement in the standard of living.

2. Explaining income differences among countries:

Population growth explains why some countries grow rich and others remain poor. Fig. 4.12 shows that an increase in the rate of population growth from n, to n2 reduces the steady-state level of capital per worker from k* to k*2. Since k* is lower, and because (y*) ________ __________ __________ __________ ___ _________ ________.
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