Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has more capital and so more real GDP per person than the other.Finally,suppose that the saving rate in both countries increases from 5 percent to 6 percent.Over the next ten years we would expect that

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When there are diminishing returns to capital, increasing the saving rate leads to a higher growth rate, but the increase in growth rate is greater in the country with less capital to start with. This is because the additional investment in capital has a larger impact on output per person in the country with less capital. Therefore, the country with less capital to start with will grow faster after the increase in saving rate.

Suppose That There Are Diminishing Returns to Capital