2. Technology transfer in the Solow model: One explanation for China's rapid economic growth during the past several decades is its expansion of policies that encourage "technology transfer." By this, we mean policies?such as opening up to international trade and attracting multinational corporations through various incentives?that encourage the use and adoption in China of new ideas and new technologies. This question asks you to use the Solow model to study this scenario.

Suppose China begins is steady state. To keep problem simple, let's assume the sole result of these technology transfer policies is to increase

5 . The empirical fit of the production model : The table below reports per capita GDP and capital per person in the year 2014 for 10 countries . Your task is to fill in the missing columns of the table ." ( a ) Given the values in columns 1 and 2 , fill in columns 3 and 4 . That is , compute per capita GDP and capital per person relative to the U. S. values . ( b) In column 5 , use the production model ( with a capital exponent of 1 / 3 ) to compute predicted per capita GDP for each country , assuming there are no TFP differences .* ( C) In column 6 , compute the level of TFP for each country that is needed to match up the model and the data . ( d) Comment on the general results you find . In 2014 USD Relative to the US values ( U. S. = 1 ) 1 2 3 5 5 Capital per Jad Capital PET Predicted Implied TFP Person capital DIET capita to match GOP PERSON GOP data Country United 1. 000 1.000 1. 000 1. 000 States 141, 841 51, 958 Canada 128, 567 43 , 376 France 162, 207 37, 360 Hong KONG 159, 247 45, 095 south Korea 120, 472 34, 961 Indonesia 41, 04 4 9, 797 Argentina 53, 821 20, 074 Mexico 45, 039 15 , 521 Kenya 4, 686 2, 971 Ethiopia 3, 227 1 , 5057. The importance of capital versus TFP: Create a new table that contains only the last three columns of the table in exercise 5 (previous question in this set). This time, instead of reporting the numbers relative to the U.S. value, report the inverse of these numbers. For example, you should have found that per capita GDP in Kenya relative to that in the United States was 0.057. Now express this number as the ratio of U.S. per capita GDP to Kenya's per capita GDP: 1/0.057 = 17.5. Fill in all three columns for the remaining countries. (a) Explain in general how to interpret these numbers and in particular how the three columns are related. (b) In the chapter, we found that about one-third of the differences in per capita GDP across countries were due to differences in capital per person and about two-thirds were due to differences in TFP. Carry out this calculation for Kenya. The United States is 17.5 times richer than Kenya; what fraction of this factor of 27 is due to differences in capital per person and what fraction is due to differences in TFP? (c) Repeat part (b) for Ethiopia