Economics 5140

Macroeconomic Analysis

Due: Mid-term Exam, 2020

1. Perpetual Inventory Method Calculate the capital productivity of China using information from the national income accounts. Use data from the United Nations Main Aggregate Database Link . Get data on GDP by Expenditure, at constant 2015 prices – National currency for China, People’s Republic of, from 1970 to 2018.

a.

Guess the capital level in 1970. A reasonable first guess is that the investment in 1970 was just enough to replace depreciation Assume a constant depreciation rate, andis constant dollar Gross Fixed Capital Formation.
b.

Use the equation to calculate the level of capital from 1971 to 2018.
c.

Use constant price GDP for output, and calculate the productivity of capital, in all periods from 1980 to 2018. In which period, was China’s capital productivity the highest?
d.

Check to see if the initial guess matters. Guess the capital in 1970 was 5 times as large as your initial guess. Use the alternative guess, to calculate estimates for capital through 2018. How large is the difference between capital productivity using your answer to Q1c. and your calculation using the different capital stock.
e.

Go back and get data for the Republic of Korea and do a similar exercise which you will use in the next session assuming
f.

Use this data to calculate the ratio of investment to output for China, Calculate the average investment rate, for the period 2010-2010.
2. Productivity. A useful database for examining international productivity and growth issues are the Penn-World Tables hosted now at the University of Groningnen. Link. Both the People’s Republic of China and Korea have had extraordinary growth performance. Many analysts examine the trajectory of Korea to examine the likely trajectory.

Go to Thematic Select to get data to calculate average labor productivity for Korea and China. This can be calculated using Link series from Real GDP, Employment and Population Levels. Download series 1) Expenditure-side real GDP at chained PPPs (in mil. 2011US$); 2) Number of persons engaged (in millions); and 3) Average annual hours worked by persons engaged.

a.

Calculate the number of total hours as L=
b. Calculate Labor productivity per hour for both China and Korea from 1980-2017. The last year that Korea’s productivity level was below to China’s productivity in 2017 was 1990. We can think of Korea in this year, T= 1990, as a useful point of comparison for current day China in terms of the income per capita.

Suppose that we could assume the production function is given by the Cobb-Douglas function

Therefore, we can explain productivity as a function of capital productivity, technology and human capital per person.

c. From question 1, you should have obtained estimates of capital productivity in China in 2017 and in South Korea in year T = 1990. In these comparable periods which economy had a lower capital productivity. What does this imply about the accumulation of capital in modern China compared to Korea at a similar stage of income?

d.

Calculate human capital in the comparable economies. Get data for schooling from the Wittgenstein Database Link. Look in the Data for Mean Years of Schooling by Broad Age selecting Age 15+ for Both Sexes from 1990 to 2030 for China and Republic of Korea. Calculate human capital, ht, for each economy in relevant years assuming China’s schooling in 2017 is equal to projected schooling in 2020. The quality of the workforce is given by the simple function: with How much larger was Korean human capital at the same stage of development. What is the ratio of
e.

Calculate the technology level for each location:. Estimate the technology level of China and Korea in the comparable years. What is the ratio of
f.

Use the Korean experience in the 1990s to project China’s advance in technology in the 2020’s. Use your measures of labor productivity, capital productivity, and human capital for Korea in 2000 to calculate the level of technology of Korea in 2000, Calculate the average growth rate of technology for Korea over the 1990s
g.

Calculate the projected average growth rate of the working population for China over 2020-2030 from the Wittgenstein Database Link. Look in the Data for Population Size by Broad Age selecting Age 20-64 for Both Sexes from 2020 and 030 for China. Use this to forecast the average growth of the labor input for the next 10 years. Note that n < 0. h. Calculate the projected average growth rate of human capital for the Chinese labor force. Use the measure of ht that you estimated in Q2d. Calculate the expected average growth rate of human capital, i. Use the parameters of , n, and that were calculated in Q2f., Q2g., Q2h. and Q1f. Use this along with your calculation of labor productivity, yt, and capital productivity for China in t=2017 that was calculated in Q2b. and Q1c. Estimate and Use the dynamic equations: to project forward on a year by year basis through 2030.