Hi guys,
If you look at the following:
Output:
Y = T * K^ α x (L^(1- α ).
K = Capital. α. = the share of capital
Output per worker ( Productivity):
Y/L = T*(K/L)^ α
α is < 1 à More K has a diminishing effect on productivity à The lower α, the lower the benefit of capital deepening.
And now comes the statement I can not understand:
Developed markets: High capital to labor ratio and a low α. à Gains less from capital deepening.
High Capital and low α??
How can you have High Capital to Labor Ratio and low α? From my understanding α is amount of capital? Meaning a High Capital to Labor Ratio should imply a high α ?
