Question

Suppose there are 2 countries i,j where both the countries are identical in every aspect excepting quality of education. Although both the countries have same levels of factors of production, however the quality of education per person in country i is better than that in country j.

a. Set up a Cobb-Douglas production function in per capita terms by incorporating q to be the quality of education. Note q should be associated with human capital per capita (h) but the level of h (may be represented by years of education) is same across the 2 countries. It is q that differs across the country. (0.75 marks)

b. Express the output per capita ratio in terms of the quality of education ratio. (0.5 marks)

c. Find the development accounting equation in the current scenario and explain how the quality difference will influence the development accounting equation. (2 marks)

d. Find the growth accounting equation in the current scenario and explain how the quality difference will influence the growth accounting equation. (2 marks)

In Chapter 6 and 7 we have discussed the role of education in creating human capital and its impact on economic growth. We noted that quality difference in education could lead to a change in evaluating the growth performance between countries. Suppose there are 2 countries ij where both the countries are identical in every aspect excepting quality of education. Although both the countries have same levels of factors of production, however the quality of education per person in country i is better than that in country Set up a Cobb-Douglas production function in per capita terms by incorporating q to be the quality of education. Note q should be associated with human capital per capita (1) but the level of h (may be represented by years of education) is same across the 2 countries. It is q that differs across the country. (0.75 marks) • Express the output per capita ratio in terms of the quality of education ratio. (0.5 marks) . Find the development accounting equation in the current scenario and explain how the quality difference will influence the development accounting equation. (2 marks) Find the growth accounting equation in the current scenario and explain how the quality difference will influence the growth accounting equation. (2 marks)

Answer 1

for developmental equation At steady state , k = 0 ith For Country ť こ sy - (Senagok 3. k qi (stu+g) k (P1_) l-x kę s st tnt + qi jth the country a 1-0 X a 1 Sant theg vi Scanned by TapScanner
Thus as we see, the capital levels of both the ith and jth countries are dependent on their respective quality of education levels. Thus as it differs in both the countries, the developmental aspect also differs in both the countries.

After finding the growth accounting equation too, we see that the overall economy's growth depends on each respective country's growth of quality of education. Thus it depends on their respective growth of quality of education in each country.

for For ith country, growth accounting equation AR + 1 + A Yi plant) + * +1(83) + (1-4-p) (gn) 041 a Y: K Similarly for jth th country (64) + (1-a-p)(8+) Y K Scanned by TapScanner