take home exam - 1 Abram Balloga Henry Wan Econ 4730...

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Abram Balloga Henry Wan Econ 4730 11/8/2008 Prelim 1 Take-Home Exam I. 1a) Refer to the following: Young, A., (1994 & 1995). “Learning by Doing and the Dynamic Effect of International Trade,” Journal of Political Economy . The key here is to look at perspiration versus inspiration. Young used Solow residuals to claim the GDP growth of those economies were due to factor accumulation—perspiration—as opposed from TFP —inspiration. In the newly industrializing countries (NIC) stated in the question, factor accumulation rose primarily through growth in labor participation rates, intersectoral transfers in labor, human capital, and investment to GDP rations. However, when one controls for the factor accumulation, the results are not that remarkable… Young also argues prior measurements of output-per-capita should be replaced with optput-per- worker, which is more closely linked to productivity—a change that explains 1% per annum of the NIC’s inflated growth rate. 1b) Young (1991) One-for-all static gains Level effect = jump a level rather than continuous, sustained growth. Young used Solow residuals to critique the notion that outward-orientated policies of nations (free trade) encouraged greater rates of growth and technological process then inward-orientated policies (autarky), by separating growth and level effects. Young concedes level effects may be increasing in free trade economies, but asserts growth levels are inferior to autarky nations. Under free trade, the developed countries’ (DC) comparative advantage will cause their labor to exit more remedial, or least advanced, good markets to innovative, or most advanced, good markets. Naturally, least developed countries’ (LDC) comparative advantage will cause the converse effects of the DC’s. This becomes problematic when Young assumes learning by doing is finite within a labor market for a good, as it forces LDC labor into industries where learning by doing has been, or soon will be, exhausted. He concludes that GDP per capital would be higher in the long-run for autocratic economies. 2a) 10/1 You can disagree with the evaluation of development by ‘Solow residuals’ with the Benchmark model. TFP is a flawed but widely used and generally useful tool in many occasions that can go seriously wrong in important issues one deals with.
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This note was uploaded on 06/25/2009 for the course ECON 4730 taught by Professor Henrywan during the Fall '08 term at Cornell University (Engineering School).

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take home exam - 1 Abram Balloga Henry Wan Econ 4730...

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