In this assignment, you will try to determine how much capital and labor efficiency contribute towards economic growth in the United States & China. Unlike the last assignments, you will use data from the Penn World Tables 8.1:
https://www.rug.nl/research/ggdc/data/pwt/pwt-8.1
To download the data, go to "Expert Data Access" and click "Excel Format". It should download a file named pwt81.xlsx. The excel file has three tabs. The Legend tab explains each variable and the Data tab contains the annual data for each country around the world up to 2011. I recommend that you copy and paste the US data (1950-2011) and China data (1952-2011) onto a separate excel file.
You will be using the following variables:
• rgdpna - Real Gross Domestic Product at constant 2005 national prices. (GDP)
• emp - Number of persons engaged. (Labor)
• rkna - Capital Stock at constant 2005 national prices. (Capital)
• labsh - Share of labour compensation in GDP at current national prices. (1 - α)
1. Solow Growth Model
(a) Discuss the Solow Growth Model with population growth and technological growth (labor efficiency). How quickly does output in the economy grow when the steady-state is reached? Discuss what you believe the growth rate of output and the growth rate of capital to be if the economy is not in the steady-state.
2. The United States
(a) Calculate the growth rates of real GDP per worker and capital per worker for each time period. What is the average growth rate and standard deviation for both?
(b) Graph the annual growth rates of GDP per worker and capital per worker across time. If the United States is on a "Balanced Growth Path" (steady-state equilibrium with efficiency growth), what would we expect of those two series?
(c) Calculate technological growth (or labor efficiency growth). What is the average growth rate of technology and standard deviation? Graph the growth rate across time.(HINT: ge = 1 (gy - αgk))
3. China
(a) Calculate the growth rates of real GDP per worker and capital per worker for each time period. What is the average growth rate and standard deviation for both?
(b) Graph the annual growth rates of GDP per worker and capital per worker across time. Does China appear to be on a "Balanced Growth Path" now? What about before the 1990s?
(c) Calculate technological growth (or labor efficiency growth). What is the average growth rate of technology and standard deviation? Graph the growth rate across time.
(d) Compare the US and China. What percentage of economic growth for both countries has come from capital growth and what percentage has come from technological growth on average?
4. Country of Choice
(a) Pick another country with at least 20 years of data. Graph the annual growth rates of GDP per worker, capital per worker, and technology (labor efficiency) over time. Discuss whether or not the country is on a balanced growth path.