Working Paper Series: Special Edition of 2016 to 2018 Interns

Equation (26) is then converted into the required error-correction model allowing for isolation of the long-run schooling parameter: (16) ∆ " = % ∙ Δ log " + A ∙ Δ log "$% − D ∙ (log "$% − ∙ log "$% − (1 − ) ∙ ∙ ℎ "$% − log "$% ) + " 3.4 Solow Framework A useful supplement to the regression analysis above is the application of the traditional Solow (1957) framework. By decomposing growth rates for specific periods by the different factors of production, it remains a useful tool in the formulation of medium-term policy recommendations. Following a brief description of the modified framework, the traditional comparative measure of growth in St Vincent and the Grenadines is presented, followed by an extended model incorporating the quality of capital and labour indices calculated earlier. Given the remit of investigating the role of the different levels of education, the model is further disaggregated by primary, secondary and tertiary education. " = " ∙ c ∙ (%$c) " " where Y is output, K physical capital and L the labour output. ‘A’ is the Total Factor Productivity (TFP) – the element of GDP Growth not accounted for by accumulation of capital or labour – sometimes interpreted as a measure of efficiency. The model exhibits constant returns to scale and markets are competitive. Given these tenants, Equation (18) is modified accordingly: (17)

7 These operators were taken from Loening (2005).

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