Technology grows at a rate of three percent in an economy in which ten percent of the workforce is engaged in research and development, where their productivity is 0.003
The economy is on a balanced growth path, and the workforce is growing at two percent. Calculate the growth rates of output, capital, and output per worker now, and five years from now.
The growth rate of output and of capital per worker is 1.43 × 0.03 = 0.043. Since the workforce is growing at two percent, output and capital are growing at 0.063. The three percent growth rate of technology equals 0.003 × 0.1 × N, so N = 100. After five years of growth at the two percent rate, N = 110, so the growth rate of technology has risen to 3.3 percent. The new growth rate of capital and output per worker is 0.047, so output and capital grow at 0.067.
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