Question

Suppose that between 2009 and 2019 in a hypothetical developing country, the share of capital in the national income, α = 0.40, the average growth rate of capital, gK = 9.2%, the average growth rate of labour, gL = 1.1%, and the average GDP growth rate, gY = 8.3%. Using a growth accounting equation, calculate the level of technological parameter.

Answer 1

Growth accounting equation:

output growth rate = (0.40 × capital stock growth rate) + (0.40*2 × labor hours growth rate)+ technology growth rate.

                         or, 8.3% = (0.40*9.2%) + (0.40*2 * 1.1%)+ technology growth rate

                        or, (8.3/100) - (40/100 * 9.2/100) - ( 80/100 *1.1/100) = technology growth rate

                        or, (8.3 -368 - 88)/100 = technology growth rate

                       or, technology growth rate=( -)4.477

It symbolizes, outdated technology.