This module provides a general framework for the study
of economic growth. The model allows to understand
both, growth in developed and developing economies,
and the level of income across countries. In the model,
developing countries exhibit lower income because they
are thought to have the equivalent of an implicit tax on
capital (because of bribes or frictions for doing business),
which reduces investment, output, and wages.
The question of income differences across countries is a
big puzzle among economists. If you think for a moment
about the issue, natural questions arise: why are the gaps
so large given that capital and technology can move
around the world, and that countries' populations can be
educated? Part of the explanation lies in history and its
by-product, institutions: rules and norms that govern
social and economic interactions.
