problems2_sols - ECON 407 Advanced Macroeconomics Practice...

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ECON 407 Advanced Macroeconomics Practice Exercises #2 Suggested Solutions Posted: February 20, 2009 Instructor: Jos´ e Tessada Due: March 2, 2009 (6pm in my office) Spring 2009 Question 1 Growth Accounting Calculation The goal of growth accounting is to learn where growth comes from. In particular, we can use it to estimate the extent to which growth comes from capital accumulation, greater labor force participation, or “technology improvements.” Standard growth accounting uses time-series data on factor quantities to determine the sources of an economy’s growth. In this problem, you will perform a simple growth accounting exercise for Canada and Chile. (a) Go to the Penn World Tables online at datacentre2.chass.utoronto.ca/pwt/ . Please retrieve the following three series for both Canada and Chile (you will only need the numbers for the following years: 1965, 1970, 1975, 1980, 1985, and 1990). 1 (i) Real GDP per capita, Y/P (in 1985 International prices). (ii) Real GDP per worker, Y/L (in 1985 International prices). (iii) Capital Stock per worker, K/L (in 1985 International prices). Note: if there are more than one series available for each of them, use that labeled as “chain” or “chain series”. Using the data, calculate the annualized growth rate for each of these three variables from 1965- 1990. Include these growth rates and the above data in a table. For this, use the following formula g X = X final X initial 1 / (final - initial) - 1 where g X is the growth rate of variable X between t =initial and t =final, X t is the value of variable X in year t , and final and initial represent the first and last year of the period you are looking at. How does Chile’s real GDP per capita grow rate compare to Canada’s? Is the gap for the Real GDP per worker growth rates smaller or bigger? Answer. Numbers are included in Table 1 . You can clearly see that Canada outperformed Chile in this period. The levels of all the variables for Canada are significantly above those for Chile, and the differences have become even bigger with the years. You can see the growth rates for the 1965-1990 period in the last row of Table 2 , and the different is clear; notice the connection between the evolution of the product per worker and product per capita and the ratio L/P . 1 Please note that for this problem set, you should use version 5.6 of the Penn World Tables. 1
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Canada Chile Year K w GDP pc GDP w L/P K w GDP pc GDP w L/P 1965 18427 8664 22245 38.9% 5063 3264 10169 32.1% 1970 23113 10124 24906 40.6% 6341 3605 11539 31.2% 1975 25813 12287 27350 44.9% 6907 2986 9173 32.6% 1980 28910 14133 28725 49.2% 6997 3892 11498 33.8% 1985 34535 15589 31147 50.0% 7060 3467 9768 35.5% 1990 42745 17173 34380 50.0% 9543 4338 11854 36.6% Table 1: Real GDP per capita and per worker, and Capital per Worker in levels (US$ 1985) and Workers to Population Ratio. (b) Compare the growth rates of real GDP per capita, real GDP per worker, and the capital stock per worker for the periods: 1965-1970, 1970-1975, 1975-1980, 1980-1985, and 1985-1990. Give a brief description. What can you say? Write just two lines, add a table with the values.
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