Closed economy -> I = S + (T-TR-G) SOLOW MODEL there are DIMINISHING RETURNS to physical capital Technological Change What is it? Where does it come from? Can we speed it up How? Technological Change is exogenous as labor productivity increases, the k per worker increases exponentially “catch up effect” OR “convergence” countries that start with lower labor productivity should increase their labor productivity much faster we are verifying that nations/states with GDP/capita that was LOW at a point and time in the past Human Capital is ALSO relevant NEVER EVER USE SELECTION BIAS! EQUIPMENT is it investment or is it technological change?