Question

How does our production function explain differences in GDP per capita (y= Y/L) across countries? (Your answer should include differences in capital per person and differences in productivity.)

Answer 1

GDP per capita is National income divided by population in a country.The production function tells us that if we know 4 things like size of laborforce,the quantity of physical capital, the quantity of human capital and the level of technology then the output that is being produced in the country can be ascertained.While making a comparison between two countries if one country has more physical capital ,more labor ,more human capital ie more trained and educated labor force,and improved technology than the country will have more output.Laborforce is more in large countries than in small countries,Improved capital goods are available in rich countries.As for eg in France , tractors and other expensive machineris are found while in Vietneducation are corelated.am ploughs pulled by oxen are seen. Again in rich countries sophisticated schools and training facilities are found which improve human capital but in poor countries only basic education is given.Overall economic performance gets affected by these differences.There is differences in laborforce in US , India and Niger .US had  labor force of 150 million in 2010.India has much more laborforce than Niger to put into its production function.Again US has much larger capital stock than Niger and India. US has capital stock worth of  $30 trillion,India's caital stock is worth $3 trillion,and Niger's capital stock is worth $9 billion.Real GDP in US is 3 times larger than India. The other two inputs like human capital and technology also matter a lot for the GDP of a country. .Differences in education and skills also bring difference in GDP.GDP per person and education are corelated.Education is less in Niger and so GDP is low.According to our production function, differencesi n technology is also important for the GDP .In developed countries improved technology also brings gains in productivity and thus lead to increased GDP.Thus all these factors affect GDP per capita in a country.