to predict that because capital is scarce in poor countries, the rate of return on capitol would be higher in the poor countries. However, this theory of technological progress in contrast suggests that because of the latest technology being available in the rich countries the marginal returns to capitol would be relatively higher in rich countries.
             Figure 1 below, is a graphical illustration of this process. The line L(a) C is the investment function. It indicates the rate of profit accumulation for a particular profit rate. It is assumed that the profit rate is initially the same for both rich (R) and poor (P) countries. The line IO is the investment opportunity function. It indicates the idea that for any given level of technology, the marginal product of capitol diminishes. The intersection of the two lines gives the equilibrium level of the rate of profit and the rate of growth.
             Suppose that technological advancement takes place in the rich country. This shifts the IO line to the right to say IO'. Thus the rate of profit
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