Question: Suppose that the production functions of the U.S. and Burundi are given by

where A measures the state of the art technology and the quality of the country’s institutions, and h measures the level of human capital per worker. Suppose that h is related to the number of years in school s in the following way:

People in the U.S. have 8 more years of education than people in Burundi. In addition, capital per person in Burundi is 0.003 times the level of capital per person in the U.S. And finally, A in Burundi is 15% of the level in the U.S.

1. Based on these data, calculate the ratio of output per capita in the two countries.
2. What is more important in accounting for output per capita differences between the two countries: differences in their human capital, differences in their technology, or differences in their capital per capita?

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