The following table provides data on output per worker, physical capital per worker, and human capital per worker, all relative to the United States. For each of the three countries listed, calculate factor accumulation and productivity relative to the United States. In which country does factor accumulation play the largest role in explaining income relative to the United States? In which country does productivity play the largest role?
Output per
Physical Capital per
Human Capital per Worker, h
0.94
0.80
0.65
Country
Worker, y
Worker, k
0.81
Netherlands 0.87
0.097
0.094
Paraguay
0.092
0.067
Pakistan
The Correct Answer and Explanation is :
I have calculated the factor accumulation and productivity for each country relative to the United States. Here are the key findings:
- Factor Accumulation measures the combined effect of physical and human capital in each country. It is calculated as the product of physical capital per worker and human capital per worker.
- Productivity is the ratio of output per worker to factor accumulation, showing how efficiently the economy utilizes its capital and labor resources.
Here are the results:
- Netherlands: Factor accumulation = 0.648, Productivity = 1.45
- Paraguay: Factor accumulation = 0.063, Productivity = 12.85
- Pakistan: Factor accumulation = 0.063, Productivity = 13.81
Explanation:
- Factor Accumulation is highest in the Netherlands, where both physical and human capital are more abundant relative to the other countries. Factor accumulation plays the largest role in explaining income in the Netherlands.
- Productivity is significantly higher in Paraguay and Pakistan, despite their lower levels of factor accumulation. This suggests that productivity plays a more substantial role in explaining income in these two countries.
Conclusion:
- Largest role of factor accumulation: Netherlands
- Largest role of productivity: Paraguay and Pakistan