M&B3 3rd Edition by Dean Croushore

Exercise 16

In the country of Bigcap, the coeffi cient in Equation (4) is a = 0.3, the capital stock is growing 10 percent per year, employment is growing 1 percent per year, and output is growing 5 percent per year. In the country of Smallcap, the coeffi cient in Equation (4) is a = 0.1, the capital stock is growing 3 percent per year, employment is growing 2 percent per year, and output is growing 4 percent per year. In which country is TFP growing the fastest Explain your answer and interpret what the result means.