Problem 2: Accounting for (technology and) growth

Consider the following data on the economies of WestWorld, a group of historically wealthy capitalist nations in North America and Europe, and EastWorld, a group of once-poor Asian nations whose economy has grown rapidly in recent years (where Y is real GDP, L is hours worked, K is the capital stock, and T is technology or "total factor productivity"):

	WestWorld	EastWorld
	1963-1993	1993-2023	1963-1993	1993-2023
Annual Growth in Y	3.2%	2.0%	6.0%	3.5%
Annual Growth in L	2.1%	0.6%	4.5%	1.5%
Annual Growth in K	3.0%	2.7%	6.0%	6.0%
Annual Growth (in Y) attributable to L
Annual Growth (in Y) attributable to K
Annual Growth in T (i.e. technology)
Annual Growth in Y/L
Annual Growth in K/L

a. In recent years, journalists and politicians in WestWorld have expressed concern about a "technology slowdown," and suspect that technology is now progressing more rapidly in EastWorld. Use the growth accounting formula %DY = %DT + 2/3 [%DL] + 1/3 [%DK] (or, equivalently, %D(Y/L)= %DT + 1/3 [%D(K/L)] to complete the missing entries in the table (you may find it useful to refer to the Congressional Budget Office table presented in class on Wednesday). Do you find evidence of a technology slowdown in WestWorld? Is technology advancing more rapidly in EastWorld than in WestWorld, in each of the two time periods?

b. Some economists believe that although the traditional growth accounting formula is relatively accurate for long-wealthy advanced economies such as those in WestWorld, a more accurate formula for rapidly-developing younger economies would be %DY=%DT+[%DL]+[%DK] (or, equivalently, %D(Y/L)= %DT+[%D(K/L)]).Use this version of the formula to re-do calculations from the table above for EastWorld, both for 1963-1993 and for 1993-2023. Does this change your conclusions comparing the rates of technology growth across the two regions?