1. Objective 1.1. Part One I want you to test hypthesis from the Solow Growth Model that the farther below its steady state an economy is, the faster it will grow. Af (k) SAf (k) Sk Sk Af ( k) y S Af (k) 2. The basic idea is that you are far from steady state, thus increasing capital has a larger effect on growth then when you are closer to steady state. . To test this hypothesis we are going to look at the following countries - United States - Germany - Italy - Japan . After WWII the last three cournties had a huge amount of capital destruction which means that they were pushed far way. from their steady states. CAPITAL CONVERGENCE PROJECT 2. They Solow Growth Model hypothesis would state the Germany would have had a much higher growth rate from Real GDP per Capita then the United States in the years after the war . The model would also predict that growth rates are converging for each of these countries and that convergence should be more stark for Germany, Italy and Japan . You will choose the United States and one other country from the list above and then in a short essay explain whether you have found support for Solow's Hypothesis as well as discussing the idea of convergence in relation to your data. 1.2. Part Two Now that you have had a chance to test the convergence hypothesis on counties after WWII I now want you to choose a country from OECD. As we have discussed before a driving factor of the Solow model is capital accumulation. For this part I want you to do the following . Choose a country from the OECD website to ensure' you will have sufficient data. This is not true for all countires and all of the necessary data so make sure you can get data before you go to far. . Give a short history lesson of the country, especially over the time period you are interested in, and give a hypothesis on what you believe happened to growth and then test it. Remem ber that you can explain both times of growth as well as contraction in an economy with the Solow Growth Model (think captial). . Do the results of the Solow Growth Model support your hypothesis if so explain carefully and if not explain what may have been the issue (or what was missing from the model).2. The Data All of the data for this assignment can be pulled from http://stats. oecd. org. I obtain all of this data for the United States in the lecture video on Moodle. Get the following data from OECD for the United States and one other country on the list as well as the country of your choice . GDP Deflator . Nominal GDP . Capital Formation . Population All of the data is found under "Data by Theme". (1) GDP Deflator . Annual National Account - Main Aggregates - Gross Domestic Product . . Click on measure and then choose DOB: Deflator, national base/reference year, seasonally adjusted. . Choose the GDP Deflator for your country and it goes in column C of the " Input Data" sheet. . You will use this to deflate all of your nominal series using this value.(2) Nominal GDP (Y) and Gross Capithl Formation (I) : Annual National Account Main Aggregates Gross Domestic Product . You need to get the following two series (a) B1.GA: Gross Domestic Product (output approach). This goes in column B of the "Input Data\" sheet. (b) P5: Gross Capital Formation. This goes in column E of the \"Input Data\" sheet e Make sure you get the measure as National currency, current prices. When you put the series in the spreadsheet it will automatically transforms the variables into real series using the deflator you got in the previous part. (3) Population e Labor Labor Force Statistics LFS by sex and age * You need to get the following two series (a) Population data for all person ! This goes in column D of the "Input Data\" sheet 3. The Spreadsheet I have created a google spreadsheet (Click Here) which you will input the data you founc% above into the correct columns. In order to use the google spreadsheet up must first make'g, copy in your own google drive. To do this click on \"File\" and then \" Make a copy..\" s , You need to make sure that you have enough data in each of the columns and you will be limited by the column with the least amount of data. Make sure that you don't delete or change the order of the columns because doing this will make the spreadsheet useless. A | 3. The Spreadsheet \\ I'have created a google spreadsheet (Click Here) which you will input the data you found above into the correct columns. In order to use the google spreadsheet up must first make a copy in your own google drive. To do this click on \"File\" and then "Make a copy..\" : You need to make sure that you have enough data in each of the columns and you will be limited by the column with the least amount of data. Make sure that you don 't delete or change the order of the columns because doing this will make the spreadsheet useless. ' On the second sheet labeled \"Capital Formation\" will help you calculate the' capital stock of each country. - On the third sheet labeled \" Capital Convergence\" you will calculate the annual and 10-year average growth for Real GDP, Real GDP per capita and Real Capital Stock . S What to Submit 41. Part One : You will need to turn in the following for this project e The spreadsheet with all of you data for both countries . e A graph of the year over year growth rates. e A graph of the rolling 10 year growth rates | oper %_1 T lare CAPITAL CONVERGENCE PROJECT 4.2. Part Two You will need to turn in the following for this project . The spreadsheet with all of you data for both countries . Short essay explaining if the results of the Solow Growth Model support your hypothesis if so explain carefully and if not explain what may have been the issue (or what was missing from the model). You must decided what supporting evidence you need to submit to support your claim. Any claim made without supporting evidence will be penalized