Task 1:
Read A contribution to the empirics of economic growth, by Mankiw, Romer and Weil, and provide answers to the following question.
- What is their data source? How do their samples differ? Which countries do they exclude? Do they include multiple observations of each country, or just a single observation?
- The authors make an identifying assumption when estimating the parameters of an un-augmented Solow model. What are their assumptions?
- Can you think of a good reason that population growth would be correlated with the technology available to a country?
- How do the authors augment the model to include human capital? Does it help?
- Does conditional convergence hold?
Task 2
Part 1: Estimating the depreciation rate in Australia
- Source data on real (Chain volume measures) investment in Australia. You should find this in ABS catalogue 5204.0, expenditure series (the series is called All sectors ; Gross fixed capital formation: Chain volume measures ;). Save this in a csv file and read into R.
- Source the current value of non-financial capital stock in Australia. This is in the National Balance Sheet (in 5204). The value I want is the most recent value of Non-financial - Produced assets: Volume measures ;.
- Write a function that takes three arguments (the order of these arguments is important). The first argument is the depreciation rate. The second argument is a vector of investment series (the ones you’ve just pulled from the ABS; you’ll find it easier if you order them newest to oldest). The third argument is a current estimate of the capital stock. For help in writing functions, see this great resource: http://www.ats.ucla.edu/stat/r/library/intro_function.htm.
- The function should perform the following calculations:
- It should work out the remaining capital at \(t\) from historical investment given some depreciation rate \(\delta\). \[
\mbox{remaining capital}_{t} = \sum_{s = 0:T}\frac{\mbox{investment}_{t-s}}{(1 + \delta)^{s}}
\]
- It should then calculate the difference between the estimated remaining capital and the surveyed remaining capital.
- The function should return the absolute value of the difference.
- Use R’s
optim function to find the value of \(\delta\) that minimises the difference between the ABS’s estimate of the capital stock and the stock implied by historical investment.
- What is the depreciation rate?
Part 2: Balanced growth output in Australia
- We need to parameterise an Australian model.
- Get \(\alpha\) (the capital share) from the 5204 income account. What is gross mixed income? Is it capital income or labour income?
- Get \(s\) from the expenditure accounts. Note that because Australia imports a lot of capital, take this to be the ratio of investment to GDP. Use the average value for the last 5 years.
- Take \(n\) to be the growth rate of the labour force (Cat. 6202). Note that we were taking this to be a single parameter—now let it vary over time (just as our savings did last time).
- Let \(g=0.016\).
- What is the steady state output per worker in 2015?
- What is the steady state output per person in 2015?
- What are the actual values?
Part 3: A labour force shock (re-use your model from last week!)
Because of yupsters not vaccinating their children, Australia has a polio epidemic and a large number of healthy adults are removed from the labour force. The labour force participation rate decreases by 3 per cent, permanently.
- What happens to output per worker?
- What happens to output per person?
- What happens to the children?