Uhryssi Giannitsarou 1. Use the data set Penn World Tables 9.!) (PW) to get data for the following coun- tries: Denmark, E'ance, lGreece, Netherlands, Spain, Switzerland, United Kingdom and United States. (a) ('3) Calculate the real capital and output per person for these countries in 2094 and $114. Normalise all series so that capital and output per person in the US is equal to 1. Assuming that the labour income share for all countries is 2f3, what is the implied {residual} TFP that ts the data in these two years? Now let's do the following improvement: the PWT data set offers estimates of the labour income share that may vary sligbly over time and also across countries. lie-evaluate the implied TFP that ts the data in these two years, now using for each country the estimated labour income share (assuming a Cobb-Douglas production function Y = AKQLl'}. Does the model do better in explaining the income differences across the different countries with this modication? Many economists suggest that an important omission in the basic model of pro- duction is human capital. Assume that we can modify the production function as Y = AKQHLl; we can imagine human capital H as being a component of TFP that we now explicitly take into account. Use the PWT index of human capital per person to discuss how much of income differences across countries can be additionally explained by human capital differences. (Hint: you need to think carefully what the oolne for ,8 should be; try di'erent values and oer ammonia about why certain trainee are more plansihle than others}