Econ 7040 Macroeconomic Analysis Tutorial 5
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Macroeconomic Analysis (Econ 7040)
Tutorial 5: Growth empirics
1. Suppose that the level of human capital in country i is denoted by
Hi= e(Ei)Li ,
where Ei are years of schooling, Li is labor, and φ(·) is a given function
φ(Ei) = a · Ei if Ei < 4
φ(Ei) = a · 4+b · (Ei — 4) if 4 Ei < 8
φ(Ei) = a · 4+b · 4+c · (Ei — 8) if Ei > 8,
where a,b,c are the returns to education in the irst 4 years, the following 4, and the years after the 8th, respectively.1
Calculate lnhi (hi = ) for the following cases
(a) a = b = c = 0.1, and Ei = 7
(b) a = b = 0.1, c = 0.08, and Ei = 9
(c) a = 0.1, b = 0.08, c = 0.06, and Ei = 11
2. Use the equation above and the information on years of schooling from the database in Hall and Jones (1999) to measure per-capita human capital (hi) of Australia, Den- mark, Canada, Norway, Hungary, U.S.A., and New Zealand.2 Assume that φ(Ei) is a piecewise linear function. In particular, φ(·) implies that in the irst 4 years of school, each year yields a return of 11% (a). In the next four years, each year yields a return of 8% (b), while beyond the 8th year of schooling each year returns 5% (c).
(a) Which of those countries has the largest level of human capital per-capita?
(b) What is the average and standard deviation of hi in this sample of 7 countries?
(c) Finally, what is the correlation between hi and income per-capita yi? Is this 7 countries sample representative of the “population” of countries? What do you observe when you use the whole sample?
2023-05-23
Growth empirics