ABSTRACT
Transitional dynamics in a standard neo-classical growth model require a Taylor approximation on the steady state of the economy. Along this transitional growth path, the economy’s growth rate is expressed as the value of the product of the log of the difference of the initial income and its steadystate level, and of the sum of various model parameters such as labor’s income share of GDP, the growth rate of labor and the depreciation rate of a capital good. For given values of the parameters of the economy, its growth rate on the transitional path is higher when the initial income is low relative to its value in the steady state. Economies with lower levels of per capita income tend to grow faster. Conversely, economies with initial income levels that exceed their steady-state incomes have lower growth rates. Hence, the per capita income of the economy converges not only to its own steady-state value, but also to the per capita income of other economies (Barro and Sala-iMartin 2004). Once the economy reaches its steady state, no further increases in per capita income occur.
