Homework Assignment 2: The Advantages of
Backwardness
36-402, Data Analysis, Spring 2011
Due 25 January 2011
Many theories of economic growth say that it’s easier for poor countries to
grow faster than rich countries — “catching up”, or the “advantages of back-
wardness”. One argument for this is that poor countries can grow by copying
existing, successful technologies and ways of doing business from rich ones. But
rich countries are already using those technologies, so they can only grow by
finding new ones, and copying is faster than innovation. So, all else being equal,
poor countries should grow faster than rich ones. One way to check this is to
look at how growth rates are related to other economic variables.
We will use the np package on CRAN to do kernel regression.1Install it,
and load its oecdpanel data set. This contains growth data for many countries
for 1960–1995, collected by the Organization for Economic Cooperation and
Development (the OECD). We won’t use all the variables this time.
GDP is “gross domestic product”, the total value of all economic production.
It’s usually reported per capita and per year. Call it Yi,t, since it depends on
the country iand the year t. GDP isn’t perfect2, but it is standard.
In oecdpanel, the variable growth is the logarithmic growth rate of GDP,
= log Yi,t+1 /Yi,t . We look at logarithms because economic models suggest that
the factors which affect growth should multiply together, rather than adding.
What’s actually recorded here is the average growth rate over a five-year period,
reducing year-to-year accidents.
initgdp is logYi,t , the logarithm of per-capita GDP at the start of each
five-year period.
A country’s investment rate is the fraction of its GDP that goes into building
or repairing productive assets (roads, harbors, power plants, factory machines,
buildings, etc.). inv is the logarithm of the investment rate, so inv=-2.26
means 10.4% of output was invested.
popgro, similarly, is the logarithm of the population growth rate.
1The package has good help files, if you want to know more. Or see http://www.jstatsoft.
org/v27/i05.
2If everyone gets worried about being robbed, GDP goes up by the amount we spend on
extra locks, alarms, guards, etc., none of which would be needed if we just didn’t have so
many burglars.
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