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JEM004 - Empirics Problem Set 1

The document analyzes economic data from multiple countries over several decades. It uses graphs and statistical models to examine GDP per capita levels and growth rates. Several countries' economies see notable changes over time. The analysis finds some evidence that richer countries saw slower growth, though results are not entirely robust.

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David Zajicek
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13 views

JEM004 - Empirics Problem Set 1

The document analyzes economic data from multiple countries over several decades. It uses graphs and statistical models to examine GDP per capita levels and growth rates. Several countries' economies see notable changes over time. The analysis finds some evidence that richer countries saw slower growth, though results are not entirely robust.

Uploaded by

David Zajicek
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Group 28

Problem Set 1 Empirics


David Zajíček, Valeria Simachyova

2. 1. Distribution of GDP per capita across countries

Figure 1: GDP per capita relative to the US in 1980, 2000, 2014

In the Figure 1 we can see the the relative values of the real GDP per capita to real GDP per
capita of the United States. We can notice that there are obvious outliers – Brunei, Kuwait,
Macao, Quatar, Saudi Arabia, United Arab Emirates.
Most of them oil-focused economies, the explanation rests either with oil or with huge
population changes.

Figure 2: log of GDP per capita relative to the US in 1980, 2000, 2014

Upon further inspection, we can see that there are interesting shifts observable, if log of the real
GDP is taken. If we are in fact dealing with convergence, we should see that red dots will be
positioned closer to the zero line (US baseline) than their green and yellow counterparts.
Figure 3: histogram - log of GDP per capita relative to the US in 1980, 2000, 2014

The tendency to converge can further be noticed in the histograms, where gradual shift to the
right (i.e. convergence around baseline of the US) is also observable.
The shape of bell curve is also becoming more prominent with time, which is also a good sign.

Taking away the outliers doesn’t seem to make a significant change:

Figure 4: histogram - log of GDP per capita relative to the US in 1980, 2000, 2014 / without outliers

… trend appears to persist.


We can see some interesting development in following countries:
(numbers in the brackets are real relative GDP per capita to US GDP per capita in
1980,2000,2014)
- ARUBA (0.48128506 0.94186463 0.72577103) was really close to matching US, only to fall
back behind. Used-to-be country with focus on oil, Aruba is now trying to make it as a tourist
destination.
- BRUNEI (5.59190697 1.11729136 1.30989810) shows major fall, but this could be explained
by the fact that the population almost doubled. 1980 was also above average year in terms of
GDP for Brunei, which also causes a bit of a distorted view.
- HONG KONG (0.51615387 0.75358561 0.99073143) seems to be a proof of vitality of non-
interventionism. The growth slowed down around 2011 though.
- MACAO (0.48087059 0.58125893 2.42833317) Macao saw sharp rise in GDP between 2010-
2014, explained mostly by massive gambling sector. In recent years, this segment saw a decline
caused by chinese anti-corruption programmes and emergence of other gambling havens in the
area.
- MONGOLIA (0.06016445 0.05881040 0.22042149) transitioned to market economy in the
beggining of the 90's, that caused major decline of the economy, but upon which ashes arose a
quickly growing economy.
- UNITED ARAB EMIRATES (7.44450645 2.14499977 1.23149688) shift is caused by
population growth. Starting with 1 million in 1980, they crossed 9 million by 2014.

2.2 Unconditional convergence

Figure 5: log of relative GDP per capita in 1970 and growth since 1970

While the first picture doesn’t really show any clear indications of clear-cut relationship, if we
only look at OECD countries, the relationship seems to be negatively correlated – the higher
the GDP per capita in the 1970, the slower the growth.
Non-OECD countries show a trend similar to that of all the countries combined.
Conclusions are not robust on the sample. OECD countries show different pattern than the rest
of the countries. For oecd countries, it pretty much holds that the better the initial position, the
lower the growth. The rest of the countries show almost neutrality, statistically insignificant
one.
2.3 The Solow model
*observations with missing values were excluded
*Popgrow_90, Sk_90, Sh_90 and gc_90 were used

Compared to in-class results, we have only around 53 % of differences explained by the model,
while the in-class model had around 60 %. The difference is assumed to be caused by
differences in data sets -> more countries, longer time period.

Testing linear restriction indicates that due to failure to reject null hypothesis, the condition
that β2 = −β3 holds.

𝛼 = 2,3064/(1+2,3064) = 0,696969697
2.4 The Solow model
*same as previous

First off, there seems to be an issue with parameter of log_ngd, which is positive and non-
significant, contrary to model expectations.
The explanatory power of the model seems on par with the one from class, previously
mentioned issue impacted the size of other parameters, so the difference from in-class model is
noticable.

To add to the issue of non-significant parameter in regression, we also have to reject the
restriction β2 + β3 + β4 = 0.

Overall, the baseline model seems to be more in line with the theoretical expectations, while
the extended one has increased explanatory power.

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