Consider the following growth accounting data. The numbers on the table represen

Question

Consider the following growth accounting data. The numbers on the table represent growth rates for a specific variable over a specific time period.

1948 - 2011    1948 - 1973       1973 - 1995    1995 - 2007   2007 - 2011

K/L 0.9             0.9                           0.7                1.1                   1.1

L     0.2            0.2                           0.3                0.2                    0.4

TFP 1.4          2.2                          0.5                  1.5                    0.4

If the production function is given by Yt = AtKt1/3 Lt2/3 , Find the growth rate of per capita GDP for 1948 - 2011.       

Explanation / Answer

Y = A. K1/3L2/3

Dividing both sides by L:

(Y/L) = A. (K/L)1/3

Or, y = A.k1/3

Where y: Per capita GDP

A: TFP

In 1948-2011,

K/L = 0.90

A = 1.4

So,

y = (1.4) x (0.90)1/3 = 1.4 x 0.97 = 1.34

So, growth rate of per capita GDP = 1.34

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