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Your assignment is to prepare and submit a paper on a medium-term strategy for raising gross domestic product.
Your assignment is to prepare and submit a paper on a medium-term strategy for raising gross domestic product. It is estimated that the expenditure of US% 2 billion will boost the secondary school enrolment rate (expressed as a percentage of the secondary school age population) by about 6%, from the current figure of 55% to an estimated 61%.
However, since the previous meeting of the committee, the country has experienced a financial crash. Senior representatives from the banks have been lobbying furiously for financial support to enable the banks to continue lending, in an attempt to avert a full-scale economic recession. They have argued that by providing emergency financial support now, the government can prevent the banks from shrinking their balance sheets, and maintaining a strong and vibrant banking sector is essential if the country is to achieve the targeted growth in its per capita GDP over the medium term. It has been estimated that US$ 2 billion allocated to the banking sector now will prevent a drop in the ratio of Private Credit by Deposit Money Banks and Other Financial Institutions to GDP, from the current figure of 0.52 to an estimated 0.38.
You have been asked by the Minister of Finance to investigate the empirical evidence as to whether the sum of US$ 2 billion would be spent more effectively on boosting secondary school education, or on bailing out the banking sector. You can recall an empirical model that addresses exactly this type of question, which was presented in a series of tutorials/workshops in which you participated during your time as a masters student at Bangor University in the UK. You are concerned, however, that the data that were used in this exercise are now several years out of date, and you have decided that it would be a good idea to update the data and re-estimate the model.
In order to complete this task, you have been assigned the following electronic resources:
1. An Excel file struct2.xls, which has been downloaded from Ross Levine's website, in which can be found data on the financial development indicator to be used in the empirical model, the ratio of Private Credit by Deposit Money Banks and Other Financial Institutions to GDP (see column M)
2. An Excel file tab396.xls, containing United Nations data on rates of secondary school enrolment per head of the secondary school-age population in selected years: 1980, 1990 and 1997 (see column BI for the 1990 data).
3. A link to the Centre for International Comparisons at the University of
Pennsylvania website, from which you can download data on all of the other variables that are used in the model.
