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Poor countries, by contrast, start off with much less capital per worker.
Lower investment means a smaller capital stock, less capital per worker and hence lower wages.
A big part of this is because low capital per worker means low output per worker.
A small country like Luxembourg has much less capital in total than India, but Luxembourg has more capital per worker.
In the Heckscher-Ohlin theory it is not the absolute amount of capital that is important; rather, it is the amount of capital per worker.
Because they start with much less capital per worker than developed economies, they have huge scope for boosting productivity by importing Western machinery and know-how.
Similar(14)
The steady state of the model, at a per worker capital level k* and output level y*, can be solved by assumptions on capital accumulation, typically by either using a Solow or Ramsey growth model.
Its capital stock per worker is only about a quarter of South Korea's, for example.
Taking advantage of the low capital investment per worker, many clothing entrepreneurs began to farm out their cut garments to be sewn at home.
For example, in the mid-1990s the average amount of capital deployed per worker in Thailand was only one-eighth of that in America.
This fall in productivity growth was not due to lower capital accumulation per worker in the aftermath of rapid employment growth, but rather to a drastic reduction in TFP growth, from 1.5% in 1980 1994 to −0.5% in 1995 2005.
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