Consider a world consisting of a collection of closed neoclassical economies. Each country j has access to the same neoclassical production technology and admits a representative household with preferences
dt. Characterize the cross-country differences in income per capita in this world economy. What is the effect of a 10% difference in discount factor (e.g., a difference between a discount rate of 0.02 versus 0.022) on steady-state per capita income differences? [Hint: use the fact that the capital share of income is about 1/3.]