Harrod-domar model for number 1, solow model for number 2
For this assignment, you need to work with the World Bankas World Development Indicators (WDI) website. Its address is: investment rate (for this purpose use the indicator a?gross capital formation, % of GDPa? from the indicator list on the website) for your country for the period 2000-2004. Assume v 3 in the Harrod-Domar model from class. According to this model, what should be the implied GDP growth rate for each following year, 2001-2005? (e.g., a certain saving rate in 2000 implies a certain growth rate in 2001). Compare the implied growth rates for each of the 5 years (2001-2005) with the actual GDP growth rates for 2001-2005 (the indicator a?GDP growth (annual %)a?) in the data for your assigned country. Discuss whether this evidence seems to support or reject the Harrod-Domar model. If the evidence does not support the model, within 150 words, list a few possible reasons for the modelas failure to explain the countryas growth rate.
2. Retrieve and write down the a?GNI per capita, PPP (current international $)a? for your developing country and for Canada for year 2000. Then look at the data on subsequent GDP growth for years 2001-2005 that you retrieved in exercise 1 above and also retrieve the corresponding data (same indicator, same years) for Canada. Compute the average GDP growth rate for this five-year period for your country and for Canada. Given that your country started with a lower income per capita than Canada in 2000, what does the Solow model from class predict for its average growth rate compared to that of Canada? (Assume for simplicity that other factors like saving rate, technology, etc., are the same). According to the Solow model, should your country have grown faster or slower than Canada? What did actually happen? Explain briefly (within 150 words) why you think this evidence confirms or contradicts the prediction of convergence of growth rate of all countries described in the Solow Model.