n 2005 dollars Relative to the U.S. values (U.S. 1) Capital Per Capital Per Pred
ID: 1153907 • Letter: N
Question
n 2005 dollars Relative to the U.S. values (U.S. 1) Capital Per Capital Per Predicted Implied per capita per capita y person GDP 124,162 41,365 TFP person GDP U.S. Canada 110,132 37,104 O ,0 6 06 Hong Kong 136,360 38,685 ?\ |.qy ||.04|.20 S. Korea 101,506 26,60926 30 2 61 3 Mexica 35,887 11,939 30 Ethiopia 977 680 .011.021.22 | .20 (2) An important question of macroeconomic research is to understand the differences in income between the richest and poorest countries of the world. Empirical research shows that differences in TFP explain about 2/3 of the differences in income, while differences in K/L (-k) explain about 1/3. Explain the above question based on the last three columns. Comment on the columns 5 and 6 regarding the empirical fit of the production model. (10 Points)Explanation / Answer
As the statement says the difference in the richest and the poorest courntries inthe world is eplained by TFL AND CAPITAL-LABOUR RATIO where TFL explains 2/3 and K/L explains 1/3 for the difference.
Now let us take the case of the richest among the group that is U.S AND THE poorest that is ETHIOPIA.
The K/L for U.S IS 1 and TFL for U.S is 1 while for Ethiopia it is 0.1 and 0.20 respectivly.
Now if we see the column of per capita GDP it is 1 for U.S and 0.02 for Ethopia.
Thus going by the above statement we can conclude that for U.S per capita income which is 1 TFL OF US ( 1) contributes to 66% and K/L conributes to 33% i.e 0.66 of output is because of TFL and .0.33 of output is because of K/L.
similarly we can conclude that for Ethopia per capita income which is 0.02 TFL OF Ethopia ( 0.20) contributes to 66% and K/L conributes to 33% i.e 0.0132 of output is because of TFL (66% of 0.02) and .0.0066 of output is because of K/L(33% of 0.02).
Like wise we can compare for Canada and Ethopia where Canada is a rich courntry and Ethopia is a Poor Courntry.
Comment for Coloumn 5 AND 6
The column 5 represents the predicted value for next time period while while 6 is the TFL.
Again if we apply the above principle we for U.S for TFL 1 the estimated output of Y*= 1,66% contribution is because of TFL.
lIKE WISE for CANADA for TFL 0.06 the estimated output of Y*= 0.96, 66% contribution is because of TFL.
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