Question

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A

Answer 1

If we made the assumption that both countries had a per capita of $15,000 in 1960, country A, which entered an era of political stability, and applied liberal reforms, growing at a rate of 5%, would double its GDP per capita by 1975, reaching a GDP per capita of $31,183.92.

On the contrary, country B, which continued to grow by 1% per year, would only double its GDP per capita by 2030, reaching a figure of $30,101.45.

Therefore, it would take 55 years more for country B to double its per capita GDP level compared to country A.