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Understanding Macroeconomy Essay

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Understanding International Macroeconomy

EMBA - Dubai
Spring 2012

Assignment 1: Mohamed ZIANI 1595216

Question: Using these data and your knowledge of the determinants of long run prosperity rank the countries in terms of their growth prospects.

Cobb-Douglas production function says output (GDP) depends on capital (K), Labor (L) and Total Factor Productivity (TFP) such as:   Output = TFP x Capital Stocka x Labor1-a. A is generally equivalent to 0.3. From that we can use the Solow Neoclassical model to assess this 8 emergent economies and their output production. In such emergent economies, growth depends mainly from capital accumulation and investment (which is equivalent to the savings), but in the long run, investment affects only the level of output and not the growth of output. Then, we have also to focus on the Human capital (Labor) and above all on the TFP who are the main cause of growth in the steady state/long run.
A key determinant of the TFP is the Institutions. Quality of Governance related to the rule of law and the absence of corruption are a critical component of the institutions. The data provided in the appendix are insufficient in terms of elements of the TFP source of growth. To improve our TFP, we therefore will use additional data such as the Worldwide Governance Indicators constructs aggregate indicators of three broad dimensions of governance: Regulatory Quality, Rule of Law and Control of Corruption (additional data from http://info.worldbank.org/governance/wgi on governance). Also we will take in account geography which is an important key factor influencing the TFP and the Human Labor. Geography data will mainly come from Wikipedia.

Therefore, considering all these models and data, my ranking for these countries regarding their growth prospects would be: 1/ South Africa 2/ Egypt 3/ Sri Lanka 4/ Vietnam 5/ Ghana 6/ Pakistan 7/ Cambodia 8/ Bangladesh

South Africa (SAF) came first because it globally finished first rank in...

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