The share of GDP devoted to investment was similar for Canad

The share of GDP devoted to investment was similar for Canada and South Africa over the period 1990-2010. However, South Africa had a 8 percent growth rate of average income, while Canada had only a 2.1 percent growth rate. Clearly explain this in writing am with a diagram.

Solution

This is due to diminishing returns to capital. A country having a lot of income, and capital, gains fewer by adding more capital than does a country that currently has little capital. It is easy to predict how a poor country without much capital could increase its output significantly with even a little more capital