Exercise1_solutions

# Exercise1_solutions - EEP 151/Econ 171 Development...

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Unformatted text preview: EEP 151/Econ 171 Development Economics Exercise 1: Using indicators to characterize development patterns Alain de Janvry, David Roland-Holst, Alan Fuchs and Paul Wassenich September 22, 2008 I. [20 points] Comparing income growth across countries Countries may achieve high growth rates in nominal GDP, but what matters in comparing growth achievements across countries is high growth rates in real per capita GDP. This requires correcting nominal GDP for population growth and for inflation. You are given in worksheet 1 (GDPpc) data on: • GDP in current LCU (local currency units) • GDP price deflator (2000 = 100) • Population, total for 2000 and 2006 for the following countries: China, India, Brazil, and Kenya. These data are from the World Bank, World Development Indicators 2008, online. 1. [8 points] Calculate for each country the % average annual growth rates for: (a) GDP in current LCU, (b) GDP deflator (the rate of inflation), (c) Population, (d) The nominal GDPpc (pc means per capita), (e) The real GDPpc. Give a table with your results. The results can be seen in Table 1 below. The average annual growth rate i between y and y T is measured as i = 100 * e n ( 1 T ) * ln y T y- 1 o , as stated in page 3 of Chapter 1 “What is development? Issues and indicators”. 2. [8 points] To help interpret your growth rate measurements, calculate the number of years that it will take to double each of the four indicators: GDP, population, GDPpc, and real GDPpc. The doubling time in years is included in the rightmost column of the table above. The formula used to calculate these values is T = ( ln ( 2 ) / i ) where i is the average annual growth rate calculated in the adjacent column of the table. 3. [4 points] Interpret your results: Why did India perform less well than China in real GDPpc growth in spite of the fact that the two countries’ nominal GDP growth rates were not so different? Similarly, why did Brazil perform less well than China in real GDPpc growth? Why did Kenya achieve a lower GDPpc growth rate than the other three countries? As we can see from Table 1, China had the highest average annual growth rate in real GDPpc between 2000 and 2006 with 9.1% per year, followed by India with 5.8%. India performed less well than China in real GDPpc growth in spite of the fact that the two countries’ nominal GDP growth rates were not so different because India’s population growth and inflation rates were higher than China’s over the analyzed period. India’s average annual population growth rate for the analyzed period was 1.5% compared to China’s 0.6%, and India’s average annual inflation rate for this period was 4.3% while China’s was 3.3%....
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Exercise1_solutions - EEP 151/Econ 171 Development...

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