2 growth, accumulation and policy

8/9/2019 2 Growth, Accumulation and Policy

1/27

1

ECONOMIC GROWTH:ACCUMULATION & POLICY

Macroeconomics (EKO 503)

Lecture II-III

Prof. Hermanto Siregar


2/27

GROWTH & ACCUMULATION

O!er t"e #erio$ 1%0-1&&%' income #er ca#ita of t"e S "a$

increase$ more t"an siteen fo*$

+a#an "as gone from ,eing amo$erate* #oor countr (,efore II) to ,eing a /ea*t" countr /it" astan$ar$ of *i!ing t"at of t"e S

income #er ca#ita of or/egian "as

s#urte$ in t"e *ast 5 ears. ut 2"ana /as !er #oor 100 ears

agoan$ gro/t"*esssa$*remains t"at /a to$a. "4


3/27

3

Growth Accounting

Out#ut gro/s t"roug" increases in in#utsan$ increases in #ro$ucti!it $ue toim#ro!e$ tec"no*og.

Y = A.F(K, N) Y = K(AN)1-

Yis out#utAt"e *e!e* of tec"no*og(6#ro$ucti!it7) Kca#ita* an$ N*a,or.

2ro/t" accounting e8uation'

Y/Y = [(1-)

N/N] + (

K/K) + A/A

Out#ut2ro/t"

La,orS"are

La,or2ro/t"

9a#ita*S"are

9a#ita*2ro/t"

:ec"nica*Progress


4/27

;

2ro/t" accounting e8uation summari


5/27

5

Accounting for Growth in Per C!it Out!ut

Per 9a#ita 2>P ? 2>P @ Po#u*ation or' A@

Y/Y = y/y + N/N 9a#ita* *a,or ratio' B K@

K/K =

k/k +

N/N :"e gro/t" accounting e8uation can t"us,e rearrange$ to'

Y/Y N/N = [K/K N/N] + A/A

/"ic" in #er ca#ita term is'

y/y = k/k + A/A.

is aroun$ 0.5 1C increase in t"eamount of ca#ita* #er /orBer increases#er ca#ita out#ut , on* 0.5C.


6/27

D

"ctor# Other thn C!it$ n% Lor

atura* resourcesMuc" of ear* #ros#erit of t"e S /as

$ue to its a,un$ant ferti*e *an$. >uring1%0-1%0 t"e *an$ gre/ , 1.;1C#.a. contri,uting great* to gro/t"

>uring 1&0-1&&0 or/aFs #er ca#ita2>P rose from D1C of S #er ca#ita

2>P to C. Muc" of t"is gro/t" s#urt/as $ue to $isco!er an$ $e!e*o#mentof massi!e oi* reser!e


7/27

Human ca#ita* Ga/ *a,or is *ess im#ortant t"an sBi**e$ an$

ta*ente$ *a,ors SocietFs stocB of suc" sBi**s is increase$ ,

in!estment in "uman ca#ita* t"roug" sc"oo*ingon-t"e-o, training etc.

In L>9s in!estments in "ea*t" are a*so maorcontri,utor to "uman ca#ita*.

Pro$uction function /it" "uman ca#ita* (H)'

A ? .=(K H ) ManBi/ Gomer J ei*' suc" #ro$uction

function is consistent /it" factor s"ares of onet"ir$ eac" for K H an$ . 2ro/t" in t"esefactors e#*ain a,out %0C of !ariation in 2>P#er ca#ita critica* ro*e of factor accumu*ationin t"e gro/t" #rocess.


8/27

%

Growth Theor': the Neoc$##ic$ Mo%e$

eoc*assica* gro/t" t"eor focuses onca#ita* accumu*ation an$ its *inB tosa!ings $ecisions. En$ogenous gro/t"t"eor focuses on t"e $eterminants of

tec"nica* #rogress. :"e ,est-Bno/n contri,utor of t"e

neoc*assica* gro/t" t"eor is Go,ertSo*o/.

:"e t"eor ,egins /it" an assum#tiont"at no tec"nica* #rogress an$ t"at t"eeconom is at t"e stea$-statee8ui*i,rium.


9/27

&

n econom is at stea$ state /"en #erca#ita income an$ #er ca#ita ca#ita* isconstant ?0 J B?0. :"eir !a*ues

are' J B

!a*ues /"ere t"ein!estment re8uire$to #ro!i$e ca#ita* forne/ /orBers an$ re#*ace mac"ines t"at"a!e /orn out isjust equalto sa!inggenerate$ , t"e econom. If sa!ing re8uire$ in!estment B increases

an$ t"erefore out#ut $oes as /e**. If sa!ing re8uire$ in!estment B fa**s an$

out#ut a*so fa**s.


10/27

10

Per C!it Pro%uction "unction

? f(B)

9a#ita* *a,orratio (B)

B

s ca#ita* rises out#utrises (MP of ca#ita* is#ositi!e) ,ut out#utrises *ess at "ig"

*e!e*s of ca#ita* t"anat *o/ *e!e*s($iminis"ing MPK) *a/ of $iminis"ingmargina* #ro$uct.

:"e 9o,,->oug*as #ro$uction function' A ? .K1-

Per ca#ita #ro$uction function' A@ ? .K1-@

? .K-@ ? (K@)

:"erefore ? .B


11/27

11

In(e#t)ent n% *(ing

:"e investment requiredto maintain agi!en *e!e* of ca#ita* #er ca#ita (k)$e#en$s on #o#u*ation gro/t" (n N/N)an$ $e#reciation rate ($) (n+d)k.

ssuming no go!ernment sector noforeign tra$e an$ ca#ita* f*o/s an$constant sa!ing rate (s) #er ca#ita sa!ing? s.y = s.(k)

:"e net c"ange in ca#ita* #er ca#ita is t"eecess of sa!ing o!er re8uire$ in!estment'

k = s y (n + d) k t t"e stea$ state k = 0 t"us'

s y! = s (k!) = (n + d) k!


12/27

1

*te%' *tte Out!ut n% In(e#t)ent

s (sa!ing or actua* in!Ft)

BB0

s0

(nN$)B (in!estment re8uirement)

? f(B) (#ro$uction function)

0

B

9

>

t 9 sa!ing an$ re8uire$in!estment ,a*ance /it"stea$ state ca#ita* B.Stea$ state income is at> at t"e *e!e* .

If t"e econom starts at B0(/"ere sa!ing at ecee$s t"ere8uire$ in!estment at ) B accumu*ates to reac" B (t"e"ori


13/27

13

An Incre#e in *(ing Rte

ca#ita*#er "ea$

B

9

sF

s

(nN$)Bf(B)

B

9F

Out#ut

#er"ea$

If t"e sa!ing rateincreases (s to sF)t"e stea$ stateca#ita*-*a,or ratio

increases (B to B).Out#ut #er ca#itat"en increases from to .

:"e increase$ sa!ing rate in t"e short runraises t"e gro/t"rate of out#ut #er "ea$. In t"e *ong run "o/e!er it $oesnot affect t"e gro/t" rate of out#ut #er ca#ita.


14/27

1;

A%+u#t)ent to New *te%' *tte

:ime

Out

#ut#erHea$

:ime

2ro/t"

Gate

t0 t1

t1t0

n

=or income#er ca#itaan$ ca#ita*#er ca#ita toremain

unc"anginge!en t"oug"#o#u*ation isgro/ingincome an$ca#ita* must

gro/ at t"esame rate as#o#u*ation'

A@A ?@?K@K ? n.


15/27

15

Po!u$tion Growth

n increase in #o#u*ation gro/t"affects t"e re8uire$ in!estmentcur!e' (n+d)k so as to rotate it u#an$ to t"e *eft re$uces t"e stea$ state *e!e* of ca#ita*

#er "ea$ an$ out#ut #er "ea$

increases t"e stea$ state rate ofgro/t" of aggregateout#ut.


16/27

1D

Growth with E,ogenou# Techno$ogic$ Chnge

Out#ut#erHea$

9a#ita* #erHea$

s0

s1

(nN$)B

0? f(B 0)

1? f(B 1)

:"e tec"no*og

gro/s /it" t"erate' g?@

:"is is a *a,oraugmenting t"e ne/ tec"-no*og raises

t"e #ro$ucti!itof *a,or.B0 B1

:"e *ast e8uation on #age 5 t"en ,ecomes'

y/y = k/k + (1-) " or' g ? (y/y k/k) / (1- )

:"e So*o/ resi$ua*' " (y/y k/k)

is :=P.


17/27

1

GROWTH AN- POLICY

En$ogenous gro/t" t"eor eoc*assica* gro/t" t"eor $ominate$

economic t"oug"t for 3 $eca$es ,ut , t"e*ate 1&%0s it resu*te$ $issatisfaction. :"eoretica** t"e t"eor attri,utes LG gro/t"

to tec"no*ogica* #rogress ,ut *ea!esune#*aine$ t"e economic $eterminants ofsuc" tec"nica* #rogress

Em#irica** gro/t" an$ sa!ings rates s"ou*$,e uncorre*ate$ in t"e stea$ state ,ut t"e$ata maBe it c*ear t"at sa!ings rates an$gro/t" are #ositi!e* corre*ate$ acrosscountries.


18/27

1%

:"e so*ution to t"e $issatisfaction on t"eneoc*assica* t"eor *ies in mo$ifing t"e assume$s"a#eof t"e #ro$uction function in a /a t"ata**o/s for se*f-sustaining (en$ogenous)gro/t".

Gemem,er t"e figure on #age 1. n/"ere t"e sa!ings *ine is a,o!e t"e in!estment

re8uirement *ine t"e econom is gro/ing ,ecauseca#ita* is ,eing a$$e$. Starting from t"eeconom mo!es to t"e rig"t a##roac"ing t"estea$ state an$ "a*ts at 9.

:"is is guarantee$ to occur ,ecause t"e s"a#e ofsa!ing an$ #ro$uction cur!es e"i,it t"ediminis#in" $% & 'it*t"e in!estmentre8uirement *ine an$ sa!ing cur!e are guarantee$to cross.


19/27

1&

En%ogenou# Growth Mo%e$

9a#ita* #er "ea$

Out#ut#er"ea$

(nN$)B

s.f(B)

f(B) :"e (sim#*e)#ro$uction functione"i,its a constantMP of ca#ita*'

A ? a K

"ence MPK ? a.

it" no #o#u*ationgro/t" nor$e#reciation of Kan$ constant s t"en'

K ? s.A ? s.a.K or' K@K ? s.a

Hence t"e gro/t" rate of ca#ita* is #ro#ortiona* to t"e sa!ingsrate. Since out#ut is #ro#ortiona* to ca#ita* t"en t"e gro/t"rate of out#ut is'

A@A ? s.a t"e "ig"er sa!ings rate t"e "ig"er t"e gro/t".

Sa!ing is a*/as

re8uire$ in!estment.

:"e "ig"er s t"e ,igger t"e ga# ofsa!ing a,o!e re8uire$ in!estmentan$ t"e faster is gro/t".


20/27

0

E*imination of $iminis"ing margina*returns !io*ates $ee# microeconomic#rinci#*es.

:"e c"ange$ assum#tion im#*ies 9GS forca#ita* $ou,*ing K $ou,*es A

So $ou,*ing a** #ro$uction factors (K an$ L)/i** more t"an $ou,*e A if t"ere is 9GS to

ca#ita* a*one t"ere /i** ,e IGS to a** factors

taBen toget"er *arger an$ *arger firms aremore efficient so a sing*e (*argest) firm s"ou*$$ominate t"e entire econom not "a##ening


21/27

1

:"us /e oug"t to ru*e out t"e #ossi,i*it ofIGS to a** factors an$ 9GS to an in#ut at*east for a firm.

Su##ose a firm $oesnFt ca#ture a** t"e

,enefits of K t"e firm #ro$uction rises,ut so $oes t"e #ro$ucti!it of ot"er firms.s *ong as t"e #ri!ate return "as 9GS to a**factors t"ere /i** ,e no ten$enc tomono#o*i


22/27

9on!ergence Suc" 8uestion centers on /"et"er economies

/it" $ifferent initia* *e!e*s of out#ut e!entua**gro/ to e8ua* stan$ar$s of *i!ing.

eoc*assica* gro/t" t"eor #re$icts s&*ute'&nver"en'efor economies /it" e8ua* rate ofsa!ings an$ #o#u*ation gro/t" an$ /it" accessto t"e same tec"no*og t"e e!entua**reac" t"e same stea$ state e!en if oneeconom ,egins fart"er to t"e *eft.

&nditi&n* '&nver"en'eis #re$icte$ foreconomies /it" $ifferent rates of sa!ings or#o#u*ation gro/t" stea$ state incomes /i**$iffer as #re$icte$ , t"e So*o/ gro/t"$iagram ,ut gro/t" rates /i** e!entua**e8ua*i


23/27

3

Go,ert arro (1&&) "as s"o/n t"at /"i*ecountries t"at in!est more ten$ to gro/faster t"e im#act of "ig"er in!estment on

gro/t" seems to ,e transitor. 9ountries/it" "ig"er in!estment /i** en$ in astea$ state /it" "ig"er #er ca#itaincome ,ut not /it" a "ig"er gro/t" rate. :"us countries $o con!erge '&nditi&n**y.

So en$ogenous gro/t" t"eor is not !erim#ortant for e#*aining internationa*$ifferences in gro/t" rates.


24/27

;

Growth Po$ic'

is t"e #o*ic for mo!ing countries fromun$er$e!e*o#e$ to $e!e*o#e$ status.

:"e So*o/ gro/t" mo$e* #re$icts t"at "ig"#o#u*ation gro/t" (n) means *o/er stea$ state

income ,ecause eac" /orBer /i** "a!e *ess ca#ita*to /orB /it". Ho/e!er o!er a /i$e range ofincomes #o#u*ation gro/t" itse*f $e#en$s onincome. Etreme* #oor countries "a!e !er "ig" ,irt" rates

as /e** as $eat" rates mo$erate* "ig" #o#u*ationgro/t"

s income rises $eat" rates fa** an$ #o#u*ationgro/t" rises. t !er "ig" incomes ,irt" rates fa**/ea*t"ier countries a##roac" P2.

:"us some go!ernments a##* #o#u*ation contro*#o*ic.


25/27

5

:"e 6sian :igers7 (es#ecia** Hong KongSinga#ore Sout" Korea an$ :ai/an)"a!e e#erience$ "ig" gro/t". :"e

Qs#ecia* tricBF for t"is is o*$ fas"ione$ "ar$/orB an$ sacrifice. :"ese countries "a!e not "a$ remarBa,*e

increases in :=P

:"e "a!e sa!e$ an$ in!este$ #ut more#eo#*e to /orB an$ concentrate$ on e$ucationin or$er to rise "uman ca#ita*.


26/27

D

Growth in the A#in Tiger# ./0

.A$w'n Young1 23340

H.Kong

(1&DD-&1)

SF#ore

(1&DD-&0)

S. Korea

(1&D0-&0)

:ai/an

(1&D0-&0)

2>P #er ca#itagro/t" 5. D.% D.% D.

:=P 2ro/t" .3 0. 1. .D

C La,or =orce

Partici#ation3%

;&

51

3D %

3

C Secon$ar

E$ucation orHig"er

1 1DDD 5 DD%


27/27

Refor) n% Growth in E#tern Euro!e

In t"e 1&&0s t"e former* communistcountries of Eastern Euro#e an$ So!ietnion en$e$ t"e "ig"* centra*ie!e*o# contract J ,anBru#tc *a/s.

[#e nd]

2 growth, accumulation and policy

Documents