Technology Catch-Up

    For this question, please use sheet 4. In addition to China beginning a period of TFP growth, we might expect that China begins to close the gap in technology relative to the US. In this question we construct an 2 alternative path for TFP that allows for a non-constant growth rate of TFP over time in China. Note that this sheet will automatically pull in the population path you built in sheet 3. (a) (5 points) Inspect the formula in column C for years 1976 onward (row 36 on). Describe in words what you think this formula is doing. In questions 2 and 3 what happened to the relative level (ratio) of TFP in the US and China over time? With this new formula what happens to the relative level of TFP over time? Will this ratio tend to a particular value in the long run? (b) (5 points) Construct the deduced variables in columns G through M. How does Chinese growth in this scenario compare to what you saw in questions 2 and 3? Does this do a better or worse job of matching the observed data? (c) (10 points) Given the new path for TFP, in the long-run (e.g. 2100 onward) will Chinese living standards grow faster, slower, or at the same rate as in the US? Will the level of Chinese living standards be higher, lower, or the same as in the US? Explain your answer.