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Suppose the share of GDP that goes to capital is 0.30 while the share that goes...

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?
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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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