summary two sources of growth growth in steady state (=n) variation in growth in moving to steady...
TRANSCRIPT
Summary
Two sources of growth• Growth in steady state (=n)• Variation in growth in moving to steady state
• ? No growth in per capita GDP in steady state???
2 questions: log in to m.socrative.com
1.In the simple Solow-Swann growth model, a decrease in I/Y will a) Increase the growth of GDP permanentlyb) Decrease the growth of GDP in the
short run onlyc) Have no effect on growth d) Decrease the growth of GDP permanentlye) Increase the growth of GDP in the
short run only
Question 2
In the simple Solow-Swann growth model, an increase in I/Y willa)Increase GDP per capita permanentlyb)Decrease GDP per capita in the
short run onlyc)Have no effect on GDP per capita d)Decrease GDP per capita permanentlye)Increase GDP per capita in the
short run only
Model extension: effective labour different to actual
labour• E = effective labour and it grows at a rate ‘e’ due to growth in actual labour force (ie population growth, ‘n’ ) and growth in the effectiveness of each unit of actual labour (λ) due to technological change and investments in human capital (eg via education)
• Aggregate production function with constant returns to scale Y= F(K,E) and Y/E =y’ = f(k’) where k’=K/E
Analysis of capital to effective labour ratio (k’)
∆k’/k’ = ∆K/K - ∆E/E’ = sY/K – (n+λ) = sy’/k’ – (n+λ)Þ ∆k’/k’> (<) 0 when sy’/k’ > (<) (n+λ)
i.e. when sy’> (<) (n+λ)k’
Model implications I
• Steady state = [y’*,k’*]=> ∆K/K = ∆E/E = n+ λ=> ∆Y/Y = n+ λ Þ ∆y/y = λ (i.e. growth in per capita GDP in steady state)
• Two sources of growth differences: growth in steady state cf growth in moving to steady state
Model implications II
• New steady state = [y’**,k’**]=> ∆K/K = ∆E/E = n+ λ=> ∆Y/Y = n+ λ Þ ∆y/y = λi.e. same characteristics but NB transitionally higher ∆y/y than λ
Summary: Solow-Swann model of growth
• Growth differences • Either because moving to steady state (due to catch-up or change in I/Y)
• Or to differences in steady state (λ)
2 questions: log in to m.socrative.com
1.In the extended Solow-Swann growth model, a decrease in I/Y will a) Increase the growth of GDP permanentlyb) Decrease the growth of GDP in the
short run onlyc) Have no effect on growth d) Decrease the growth of GDP permanentlye) Increase the growth of GDP in the
short run only
Question 2
In the extended Solow-Swann growth model, an increase in I/Y willa)Increase GDP per capita permanentlyb)Decrease GDP per capita in the
short run onlyc)Have no effect on GDP per capita d)Decrease GDP per capita permanentlye)Increase GDP per capita in the
short run only
Summary
• Solow-Swann and 2 sources of growth difference: steady state differences and/or transitional differences
• Some evidence on ‘catch-up’(e.g. Europe and Asian Tigers during last 50 years), but weak for low per capita income countries.
• Poor countries: different production function and/or different λ?
Summary continued
• Growth as a process of transformation and the role of policy and institutions (and geography?)
• How do you acquire new technology? How easily do resources move from agriculture to industry?
• How are educational systems and infrastructure developed?
Institutions and human capital and technological change
• Incentives to change and the politics of winners and losers…
• Price signals: if demand and/or production conditions change is there an incentive to adapt?
• Well defined property rights (that align rewards with valued efforts) ---why trade or make investments?
• ‘good’ government----investments in public goods (roads, clean water, public health, etc), investments in education and social insurance, non-distortionary taxes, stable macroeconomic environment, etc.
• Social capital----do people trust each other?• i.e. quality of institutions matter
Association isn’t causation
• Reverse influence of GDP/capita on institutions
• Rich countries more easily afford education systems, infrastructure and a predictable legal system
• Rich countries more easily afford transfer payments for those who ‘lose’
Policy and institutions matter: how to test
• North Korea and South Korea• East and West Germany• China post Mao
Reform in China: markets and property rights
• 1980s: agricultural reform with market prices and ability to buy and sell on market once quotas have been filled
• Delegation of ownership: town and village enterprises
• mid 1990s: state owned enterprises allowed to become bankrupt and become shareholding enterprises
• Late 1990s: private enterprise and trade liberalisation
What are the exogenous determinants of institutions?
•Acemoglu and Robinson (2001, 2012) •Legal origins •Fractionalisation