Question

Suppose the share of GDP that goes to capital is 0.30 while the share that goes to labour is 0.70. Total factor productivity grows at a rate of 1.5 percent per year, population grows at a rate of 1.1 percent per year and total output grows at a rate of 4.3 percent per year. What is the rate of capital per worker?

Answer 1

Let gk = rate of capital per worker = ?

Total Factor Productivity growth rate = gA = 1.5

Let = share of capital = .3

(1 - ) = share of labor = .7

n = population growth rate = 1.1

Output growth rate = gY = 4.3

According to Growth Accounting Equation, we have,

gY = gA + *gk + (1 - )*gL

4.3 = 1.5 + .3*gk + .7*1.1

.3*gk = 2.03

gk = 6.77

rate of capital per worker = 6.77%

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