(solution) Consider the steady-state world equilibrium in the model of Section 19.4. (a) Show that an…

(solution) Consider the steady-state world equilibrium in the model of Section 19.4. (a) Show that an…

Consider the steady-state world equilibrium in the model of Section 19.4. (a) Show that an increase in τ does not necessarily increase the steady-state world equilibrium growth rate g∗ as given by (19.38). Provide an intuition for this result. (b) Show that even when τ does not increase growth, it increases world welfare. (c) Interpret the finding in part b in light of the debate about the effect of trade on growth. (d) Provide a sufficient condition for an increase in τ to increase the world growth rate and interpret this condition.