The Solow Growth Model
|
|
- Alberta Lawrence
- 6 years ago
- Views:
Transcription
1 The Solow Growth Model Seyed Ali Madanizadeh Sharif U. of Tech. April 25, 2017 Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
2 Economic Growth Facts 1 In the data, real GDP/capita has been growing over time for most countries. 2 There are large differences in per capita income levels across countries: $34k vs $ In similar countries, economies with lower real GDP per capita had faster growth rates. But this is not true globally. 4 Some economies were converging to each other. 5 Still there are some stagnations. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
3 Questions 1 What are the factors that lead to economic growth? 2 Why do some countries grow fast and others slow? (East Asians vs sub-saharan African countries) 3 What policies increase real GDP per capita? 4 How did rich countries sustain growth rates of 2%? Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
4 Solow Model Production function: Y t = A t.f (K t, L t ) Capital accumulates through investment: K t+1 = (1 δ) K t + I t and Y = C + I I is the investment: Purchases of capital: In the data 14% of GDP. F is diminishing marginal product of capital and labor. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
5 Solow Model F is constant returns to scale, therefore Real GDP per capita is Y /L = AF (K /L, L/L) y = AF (k, 1) y = Af (k) Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
6 Solow Model Example: Therefore Y = AK α L 1 α y = Ak α Output Y A F(K, L) As K increases, the marginal product of K (slope) decreases. Capital K Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
7 Growth Accounting log Y t = log A t + α log K t + (1 α) log L t g Y = g A + αg K + (1 α) g L or Y Y = A A + α K K L + (1 α) L y y = A A + α k k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
8 Solow Model Simplifying assumption national savings rate: s I t = sy t Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
9 Solow Model Population growth rate: g n Rewriting the law of motion: K t+1 K t+1 = (1 δ) K t + sy t L t+1 = (1 δ) K t + s Y t L t+1 L t L t L t k t+1 (1 + g n ) = (1 δ) k t + sy t k t+1 = sy t + 1 δ k t 1 + g n 1 + g n k t+1 = saf (k t) 1 + g n + 1 δ 1 + g n k t = G (k t ) Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
10 Capital choices and capital dynamics Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
11 Steady state level k = G (k ) = saf (k ) 1 + g n + 1 δ 1 + g n k = sak α + 1 δ k 1 + g n 1 + g n ( ) 1 k = A 1 α 1 s 1 α g n + δ ( ) i gn + δ = k 1 + g n ( y = A 1 α 1 s g n + δ ( Y t = A 1 α 1 s g n + δ ) α 1 α ) α 1 α L0 (1 + g n ) t Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
12 Average product of capital Output per worker y Average product of capital with k a A f(k) Average product of capital with k b k a k b Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
13 Capital growth rate Determinants of k/k k/k > 0 since s (Y/K) > sδ + n sδ + n s (y/k) k 0 k* Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
14 Growth variable Y Y k k y y = A A + α K L + (1 α) K L ( y ) = s δ n k ( ( y ) ) = α s δ n k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
15 Predictions Convergence Data: There is conditional convergence: economies with similar characteristics converge Lower K, higher growth Capital per worker k* k(0) 2 k(0) 1 Time Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
16 Comparative statics Changes in s, g n, A, δ, α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
17 A Change in the Saving Rate Determinants of k/k For any level of k, k/k is larger the higher the saving rate s 2 δ + n s 1 δ + n s 2 (y/k) s 1 (y/k) k(0) k 1 * k 2 * Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
18 A Change in the Saving Rate Compare two countries with different savings rates. How does that affect k/k, k* and y*. A higher saving rate raises k/k, which rate remains higher during the transition to the steady state. In the long run, k/k and y/y are equal to zero for any saving rate, but a higher saving rate leads to higher steady-state k* and y*. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
19 A Change in the Technology Level Determinants of k/k The growth rate of capital per worker, k/k, is higher at any k when the technology level is higher k(0) k 1 * k 2 * sδ + n sa 2 f(k)/k sa 1 f(k)/k Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
20 A Change in the Technology Level What happens to k/k, k* and y* if there is a change in technology? In the short run, an increase in A raises k/k and y/y, which remain higher during the transition to the steady state. In the long run, k/k and y/y are equal to zero for any technology level, but a higher technology level leads to higher k* and y*. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
21 A Change in Labor Determinants of k/k An increase in L 0 reduces k 0 and increases k/k sδ + n s (y/k) k(0) k(0) k* Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
22 A Change in Labor What happens to k/k, k* and y* if there is a change in the amount of labor, L? In the short run, an increase in L raises k/k and y/y, which remain higher during the transition to the steady state. In the long run, k/k and y/y are equal to zero for any L. Also, k* and y*, are the same for any L. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
23 A Change in Population Growth Determinants of k/k An increase in n reduces k/k sδ + n sδ + n s (y/k) k(0) (k*) k* Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
24 A Change in Population Growth What happens to k/k, k* and y* if there is a change in the population growth rate, n? In the short run, an increase in n reduces k/k and y/y, which remain lower during the transition to the steady state. In the long run, k/k and y/y equal to zero for any, but a higher population growth rate leads to lower k* and y*. A change in the depreciation rate, δ, has the same effect. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
25 Summary Increase in Effect on k* and y* Saving rate, s INCREASE Technology, A INCREASE Population growth, n DECREASE Depreciation DECREASE Labor input, L NO EFFECT Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
26 Optimum saving rate: Golden Rule Maximize consumption with respect to s subject to the steady state condition: max c s c = y i = y sy = A (1 s) f (k ) = (1 s) A ( s g n + δ ) α 1 α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
27 Optimum saving rate: Golden Rule Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
28 Optimum saving rate: Golden Rule take logs: log c = log (1 s) + α 1 α log s + log A (g n + δ) 1 α α FOC: α 1 1 s + 1 α = 0 s α (1 s) = s 1 α s = α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
29 Optimum saving rate: Golden Rule Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
30 Solow Model The Biggest Failure of the model: No sustained per capita growth of GDP and capital Due to DECREASING RETURNS to scale. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
31 Convergence Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
32 Convergence Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
33 Convergence Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
34 Conditional Convergence: Different Saving Rates Determinants of k/k The poor country grows from k(0) 1 to k 1 *; the rich from k(0) 2 to k 2 *. Which country grows faster depends on the initial k/k. s 2 δ + n s 1 δ + n s 2 (y/k) s 1 (y/k) k(0) 1 k(0) 2 k 1 * k 2 * Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
35 Conditional Convergence: Different Population Growth Rates Determinants of k/k The poor country grows from k(0) 1 to k 1 *; the rich from k(0) 2 to k 2 *. Which country grows faster depends on the initial k/k. sδ + n 1 sδ + n 2 s (y/k) k(0) 1 k(0) 2 k 1 * k 2 * Capital per worker k Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
36 Transition Paths For Two Economies Capital per worker k* k* 1 k(0) 2 k(0) 1 Time Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
37 Exogenous Growth Why don t we see sustained growth in the simple Solow model? How can we get it? Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
38 Exogenous Growth Exogenous productivity growth!!! How does it work? log Y t = log A t + α log K t + (1 α) log L t g Y = g A + αg K + (1 α) g L g y = g }{{} A + αg }{{} k Technical Growth Capital Deepening Intuition: How does productivity growth leads to capital deepening. Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
39 Exogenous Growth From I = sy we had: So k t+1 = sy t + 1 δ k t 1 + g n 1 + g n ( ) k t+1 s yt = + 1 δ k t 1 + g n k t 1 + g n Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
40 Exogenous Growth Balanced Growth path: All variables have a constant growth rate. Thus y t k t is constant. Therefore y and k have the same growth rate; call it g = g Y = g k g = g A + αg Amplification mechanism! Explain graphically! g = g A 1 α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
41 Exogenous Growth Also: ( ) s yt 1 + g = + 1 δ 1 + g n k t 1 + g n y t = (1 + g) (1 + g n) (1 δ) k t s y 0 g + g n + δ k 0 s A 0 k0 α 1 g + g n + δ s ( k 0 = sa 0 g A 1 α + g n + δ ) 1 1 α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
42 Growth Accounting y t and k t are observable. How about A t? How about α? Recall that with Cobb Douglas production function the shares of factor payments are constant: Empirically we can test this: In US: α 1 3 In Iran: α 2 3 Y t = rk t + wl t wl t Y t = α Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
43 Growth Accounting Now we know a log A t = log y t α log k t A t computed this way is called the SOLOW RESIDUAL. It comes from Solow (1957) growth accounting framework. He applied this framework to United States data. Found that changes in A t are responsible for 80% of changes in y t. Thus, changes in k t are responsible for ONLY 20%! Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
44 Growth Accounting More sophisticated studies include more inputs than capital: Male and female labor force participation. Education. Land and natural resources. For specific episodes the importance of input accumulation can be even higher: The USSR had input accumulation as the main growth strategy. Young (95), Krugman (94) and others provide evidence that the large post-war growth in Honk Kong, Singapore, South Korea and Taiwan was driven by input accumulation. Hsieh (99) contest their ndings Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
45 Growth Accounting Country log y t+1 y t α log k t+1 k t log A t+1 A t US ( ) USSR ( Singapore Note: This does not include other inputs. Source: Ofer (1987), Bosworth and Collins (2003) Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
46 Growth Accounting What is A t? Main problem with this methodology: Recall Moses Abramovitz (1956): At is the measure of our ignorance. In our theory A t is EXOGENOUS. In the data it is the part of y t+1 y t not explained by k t. Yet, it is fundamental to understand growth. Opennig the black box of A t Endogenous Growth models (new growth theory) Seyed Ali Madanizadeh Sharif U. of Tech. () The Solow Growth Model April 25, / 46
ECO 4933 Topics in Theory
ECO 4933 Topics in Theory Introduction to Economic Growth Fall 2015 Chapter 2 1 Chapter 2 The Solow Growth Model Chapter 2 2 Assumptions: 1. The world consists of countries that produce and consume only
More informationGrowth. Prof. Eric Sims. Fall University of Notre Dame. Sims (ND) Growth Fall / 39
Growth Prof. Eric Sims University of Notre Dame Fall 2012 Sims (ND) Growth Fall 2012 1 / 39 Economic Growth When economists say growth, typically mean average rate of growth in real GDP per capita over
More informationLecture 5: Growth Theory
Lecture 5: Growth Theory See Barro Ch. 3 Trevor Gallen Spring, 2015 1 / 60 Production Function-Intro Q: How do we summarize the production of five million firms all taking in different capital and labor
More informationTOPIC 4 Economi G c rowth
TOPIC 4 Economic Growth Growth Accounting Growth Accounting Equation Y = A F(K,N) (production function). GDP Growth Rate =!Y/Y Growth accounting equation:!y/y =!A/A +! K!K/K +! N!N/N Output, in a country
More informationEconomic Growth: Extensions
Economic Growth: Extensions 1 Road Map to this Lecture 1. Extensions to the Solow Growth Model 1. Population Growth 2. Technological growth 3. The Golden Rule 2. Endogenous Growth Theory 1. Human capital
More informationGrowth 2. Chapter 6 (continued)
Growth 2 Chapter 6 (continued) 1. Solow growth model continued 2. Use the model to understand growth 3. Endogenous growth 4. Labor and goods markets with growth 1 Solow Model with Exogenous Labor-Augmenting
More informationRoad Map to this Lecture
Economic Growth 1 Road Map to this Lecture 1. Steady State dynamics: 1. Output per capita 2. Capital accumulation 3. Depreciation 4. Steady State 2. The Golden Rule: maximizing welfare 3. Total Factor
More informationIntroduction to economic growth (2)
Introduction to economic growth (2) EKN 325 Manoel Bittencourt University of Pretoria M Bittencourt (University of Pretoria) EKN 325 1 / 49 Introduction Solow (1956), "A Contribution to the Theory of Economic
More informationEconomic Growth: Malthus and Solow Copyright 2014 Pearson Education, Inc.
Chapter 7 Economic Growth: Malthus and Solow Copyright Chapter 7 Topics Economic growth facts Malthusian model of economic growth Solow growth model Growth accounting 1-2 U.S. Per Capita Real Income Growth
More informationThe Role of Physical Capital
San Francisco State University ECO 560 The Role of Physical Capital Michael Bar As we mentioned in the introduction, the most important macroeconomic observation in the world is the huge di erences in
More informationLEC 2: Exogenous (Neoclassical) growth model
LEC 2: Exogenous (Neoclassical) growth model Development of the model The Neo-classical model was an extension to the Harrod-Domar model that included a new term productivity growth The most important
More informationAdvanced Macroeconomics 9. The Solow Model
Advanced Macroeconomics 9. The Solow Model Karl Whelan School of Economics, UCD Spring 2015 Karl Whelan (UCD) The Solow Model Spring 2015 1 / 29 The Solow Model Recall that economic growth can come from
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. Autumn 2014
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid Autumn 2014 Dynamic Macroeconomic Analysis (UAM) I. The Solow model Autumn 2014 1 / 38 Objectives In this first lecture
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. Autumn 2014
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid Autumn 2014 Dynamic Macroeconomic Analysis (UAM) I. The Solow model Autumn 2014 1 / 33 Objectives In this first lecture
More informationI. The Solow model. Dynamic Macroeconomic Analysis. Universidad Autónoma de Madrid. September 2015
I. The Solow model Dynamic Macroeconomic Analysis Universidad Autónoma de Madrid September 2015 Dynamic Macroeconomic Analysis (UAM) I. The Solow model September 2015 1 / 43 Objectives In this first lecture
More informationDepartment of Economics Shanghai University of Finance and Economics Intermediate Macroeconomics
Department of Economics Shanghai University of Finance and Economics Intermediate Macroeconomics Instructor: Min Zhang Answer 2. List the stylized facts about economic growth. What is relevant for the
More informationClass 3. Explaining Economic Growth. The Solow-Swan Model
MACROECONOMICS I Class 3. Explaining Economic Growth. The Solow-Swan Model March 7 th, 2014 Announcement Homewor assignment #1 is now posted on the web Deadline: March 21 st, before the class (12:00) Submission:
More informationMA Macroeconomics 11. The Solow Model
MA Macroeconomics 11. The Solow Model Karl Whelan School of Economics, UCD Autumn 2014 Karl Whelan (UCD) The Solow Model Autumn 2014 1 / 38 The Solow Model Recall that economic growth can come from capital
More informationThe Facts of Economic Growth and the Introdution to the Solow Model
The Facts of Economic Growth and the Introdution to the Solow Model Lorenza Rossi Goethe University 2011-2012 Course Outline FIRST PART - GROWTH THEORIES Exogenous Growth The Solow Model The Ramsey model
More informationThe Solow Model. DeÞnition 2: A balanced growth path is a situation where each variable in the model is growing at a constant rate.
DeÞnition 1: The steady state level of capital per unit of effective labour, k, is the level of capital per unit of effective labour that equates break even investment and actual investment i.e., sf(k
More informationThe neoclassical model of economic growth. Trevor Swan (1956) Give rise to the Solow Swan model
The neoclassical model of economic growth Robert Solow (1956) Trevor Swan (1956) Give rise to the Solow Swan model premises Closed economy with 1 final output Exogenous labor supply Initial physical capital
More informationTOBB-ETU, Economics Department Macroeconomics II (ECON 532) Practice Problems I (Solutions)
TOBB-ETU, Economics Department Macroeconomics II (ECON 532) Practice Problems I (Solutions) Q: The Solow-Swan Model: Constant returns Prove that, if the production function exhibits constant returns, all
More informationGrowth Theory: Review
Growth Theory: Review Lecture 1, Endogenous Growth Economic Policy in Development 2, Part 2 March 2009 Lecture 1, Endogenous Growth 1/28 Economic Policy in Development 2, Part 2 Outline Review: From Solow
More information(S-I) + (T-G) = (X-Z)
Question 1 Tax revue in the country is recorded at 40 Euros, net savings are equal to 40 Euros. The investments are a third of the size of government spending, there is a budget deficit of 20 and the current
More informationMACROECONOMICS. Solow Growth Model Applications and Extensions. Zongye Huang ISEM, CUEB
MACROECONOMICS Solow Growth Model Applications and Extensions Zongye Huang ISEM, CUEB Kaldor Stylized Facts Kaldor (1957) proposed six statements about economic growth as "a stylized view of the facts".
More informationChapter 2 Savings, Investment and Economic Growth
George Alogoskoufis, Dynamic Macroeconomic Theory Chapter 2 Savings, Investment and Economic Growth The analysis of why some countries have achieved a high and rising standard of living, while others have
More informationThe Solow Model. Econ 4960: Economic Growth
The Solow Model All theory depends on assumptions which are not quite true That is what makes it theory The art of successful theorizing is to make the inevitable simplifying assumptions in such a way
More informationQuestions for Review. CHAPTER 8 Economic Growth II
CHAPTER 8 Economic Growth II Questions for Review 1. In the Solow model, we find that only technological progress can affect the steady-state rate of growth in income per worker. Growth in the capital
More informationEC 205 Macroeconomics I
EC 205 Macroeconomics I Macroeconomics I Chapter 8 & 9: Economic Growth Why growth matters In 2000, real GDP per capita in the United States was more than fifty times that in Ethiopia. Over the period
More informationClass Notes. Intermediate Macroeconomics. Li Gan. Lecture 7: Economic Growth. It is amazing how much we have achieved.
Class Notes Intermediate Macroeconomics Li Gan Lecture 7: Economic Growth It is amazing how much we have achieved. It is also to know how much difference across countries. Nigeria is only 1/43 of the US.
More informationEconomic Growth II. macroeconomics. fifth edition. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich Worth Publishers, all rights reserved
CHAPTER EIGHT Economic Growth II macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved Learning objectives Technological progress
More informationLong run economic growth, part 2. The Solow growth model
Long run economic growth, part 2. The Solow growth model The Solow growth model The seminal Solow growth model dates bac to 1950 s and belongs to the fundamentals of growth theory The Solow model is remarable
More informationThe Theory of Economic Growth
The Theory of The Importance of Growth of real GDP per capita A measure of standards of living Small changes make large differences over long periods of time The causes and consequences of sustained increases
More informationThe Theory of Economic Growth
The Theory of 1 The Importance of Growth of real GDP per capita A measure of standards of living Small changes make large differences over long periods of time The causes and consequences of sustained
More informationMacroeconomics. Review of Growth Theory Solow and the Rest
Macroeconomics Review of Growth Theory Solow and the Rest Basic Neoclassical Growth Model K s Y = savings = investment = K production Y = f(l,k) consumption L = n L L exogenous population (labor) growth
More information1 The Solow Growth Model
1 The Solow Growth Model The Solow growth model is constructed around 3 building blocks: 1. The aggregate production function: = ( ()) which it is assumed to satisfy a series of technical conditions: (a)
More informationTechnical change is labor-augmenting (also known as Harrod neutral). The production function exhibits constant returns to scale:
Romer01a.doc The Solow Growth Model Set-up The Production Function Assume an aggregate production function: F[ A ], (1.1) Notation: A output capital labor effectiveness of labor (productivity) Technical
More informationTesting the Solow Growth Theory
Testing the Solow Growth Theory Dilip Mookherjee Ec320 Lecture 4, Boston University Sept 11, 2014 DM (BU) 320 Lect 4 Sept 11, 2014 1 / 25 RECAP OF L3: SIMPLE SOLOW MODEL Solow theory: deviates from HD
More informationLecture Notes 1: Solow Growth Model
Lecture Notes 1: Solow Growth Model Zhiwei Xu (xuzhiwei@sjtu.edu.cn) Solow model (Solow, 1959) is the starting point of the most dynamic macroeconomic theories. It introduces dynamics and transitions into
More information). In Ch. 9, when we add technological progress, k is capital per effective worker (k = K
Economics 285 Chris Georges Help With Practice Problems 3 Chapter 8: 1. Questions For Review 1,4: Please see text or lecture notes. 2. A note about notation: Mankiw defines k slightly differently in Chs.
More informationGrowth Theory: Review
Growth Theory: Review Leure 1, Endogenous Growth Economic Policy in Development 2, Part 2 April 20, 2007 Leure 1, Endogenous Growth 1/28 Economic Policy in Development 2, Part 2 Outline Review: Solow Model
More informationECON 3560/5040 Week 3
ECON 3560/5040 Week 3 ECONOMIC GROWTH - Understand what causes differences in income over time and across countries - Sources of economy s output: factors of production (K, L) and production technology
More informationMACROECONOMICS. Economic Growth II: Technology, Empirics, and Policy. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich
9 : Technology, Empirics, and Policy MACROECONOMICS N. Gregory Mankiw Modified for EC 204 by Bob Murphy PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU
More informationSeparate file have practice problems for the Cobb-Douglas production function and convergence.
Modules 3 and 4: Solow growth model practice problems Practice problems for the final exam (The attached PDF file has better formatting.) This posting gives sample final exam problems for the Solow growth
More informationCh.3 Growth and Accumulation. Production function and constant return to scale
1 Econ 30 Intermediate Macroeconomics Chul-Woo Kwon Ch.3 Growth and Accumulation I. Introduction A. Growth accounting and source of economic growth B. The neoclassical growth model: the Simple Solow growth
More informationECN101: Intermediate Macroeconomic Theory TA Section
ECN101: Intermediate Macroeconomic Theory TA Section (jwjung@ucdavis.edu) Department of Economics, UC Davis November 4, 2014 Slides revised: November 4, 2014 Outline 1 2 Fall 2012 Winter 2012 Midterm:
More informationChapter 2 Savings, Investment and Economic Growth
Chapter 2 Savings, Investment and Economic Growth In this chapter we begin our investigation of the determinants of economic growth. We focus primarily on the relationship between savings, investment,
More informationMACROECONOMICS. Economic Growth II: Technology, Empirics, and Policy MANKIW. In this chapter, you will learn. Introduction
C H A P T E R 8 Economic Growth II: Technology, Empirics, and Policy MACROECONOMICS N. GREGORY MANKIW 2007 Worth Publishers, all rights reserved SIXTH EDITION PowerPoint Slides by Ron Cronovich In this
More informationChapter 8. Economic Growth II: Technology, Empirics and Policy 10/6/2010. Introduction. Technological progress in the Solow model
Chapter 8 : Technology, Empirics and Policy Introduction In the Solow of Chapter 7, the production technology is held constant. income per capita is constant in the steady state. Neither point is true
More informationMacroeconomic Models of Economic Growth
Macroeconomic Models of Economic Growth J.R. Walker U.W. Madison Econ448: Human Resources and Economic Growth Summary Solow Model [Pop Growth] The simplest Solow model (i.e., with exogenous population
More informationECN101: Intermediate Macroeconomic Theory TA Section
ECN101: Intermediate Macroeconomic Theory TA Section (jwjung@ucdavis.edu) Department of Economics, UC Davis October 27, 2014 Slides revised: October 27, 2014 Outline 1 Announcement 2 Review: Chapter 5
More informationLong-term economic growth Growth and factors of production
Understanding the World Economy Master in Economics and Business Long-term economic growth Growth and factors of production Lecture 2 Nicolas Coeurdacier nicolas.coeurdacier@sciencespo.fr Output per capita
More informationThe New Growth Theories - Week 6
The New Growth Theories - Week 6 ECON1910 - Poverty and distribution in developing countries Readings: Ray chapter 4 8. February 2011 (Readings: Ray chapter 4) The New Growth Theories - Week 6 8. February
More informationNeoclassical Growth Theory
Neoclassical Growth Theory Ping Wang Department of Economics Washington University in St. Louis January 2018 1 A. What Motivates Neoclassical Growth Theory? 1. The Kaldorian observations: On-going increasing
More informationIntermediate Macroeconomics: Economic Growth and the Solow Model
Intermediate Macroeconomics: Economic Growth and the Solow Model Eric Sims University of Notre Dame Fall 2014 1 Introduction We begin the core of the course with a discussion of economic growth. Technically
More informationIN THIS LECTURE, YOU WILL LEARN:
IN THIS LECTURE, YOU WILL LEARN: the closed economy Solow model how a country s standard of living depends on its saving and population growth rates how to use the Golden Rule to find the optimal saving
More informationLong-term economic growth Growth and factors of production
Understanding the World Economy Master in Economics and Business Long-term economic growth Growth and factors of production Lecture 2 Nicolas Coeurdacier nicolas.coeurdacier@sciencespo.fr Lecture 2 : Long-term
More informationEconomic Growth: Malthus and Solow
Economic Growth: Malthus and Solow Economics 4353 - Intermediate Macroeconomics Aaron Hedlund University of Missouri Fall 2015 Econ 4353 (University of Missouri) Malthus and Solow Fall 2015 1 / 35 Introduction
More informationChapter 6 Economic Growth: Malthus and Solow 53
Problems 1. The amount of land increases, and, at first, the size of the population is unchanged. Therefore, consumption per capita increases. However, the increase in consumption per capita increases
More informationChapter 8: Economic Growth II: Technology, Empirics, and Policy*
Chapter 8: Economic Growth II 1/44 * Slides based on Ron Cronovich's slides, adjusted for course in Macroeconomics for International Masters Program at the Wang Yanan Institute for Studies in Economics
More informationMACROECONOMICS. Economic Growth I: Capital Accumulation and Population Growth MANKIW. In this chapter, you will learn. Why growth matters
C H A P T E R 7 Economic Growth I: Capital Accumulation Population Growth MACROECONOMICS N. GREGORY MANKIW 2007 Worth Publishers, all rights reserved SIXTH EDITION PowerPoint Slides by Ron Cronovich In
More informationChapter 7. Economic Growth I: Capital Accumulation and Population Growth (The Very Long Run) CHAPTER 7 Economic Growth I. slide 0
Chapter 7 Economic Growth I: Capital Accumulation and Population Growth (The Very Long Run) slide 0 In this chapter, you will learn the closed economy Solow model how a country s standard of living depends
More informationIntermediate Macroeconomics
Intermediate Macroeconomics Lecture 2 - The Solow Growth Model Zsófia L. Bárány Sciences Po 2011 September 14 Reminder from last week The key equation of the Solow model: k(t) = sf (k(t)) }{{} (δ + n)k(t)
More informationEconomic Growth I Macroeconomics Finals
Economic Growth I Macroeconomics Finals Introduction and the Solow growth model Martin Ellison Nuffield College Hilary Term 2016 The Wealth of Nations Performance of economy over many years Growth a recent
More informationLecture 2: Intermediate macroeconomics, autumn 2014
Lecture 2: Intermediate macroeconomics, autumn 2014 Lars Calmfors Literature: Mankiw, chapters 3, 8 and 9. 1 Topics Production Labour productivity and economic growth The Solow model (neoclassical growth
More informationECON 302: Intermediate Macroeconomic Theory (Spring ) Discussion Section Week 7 March 7, 2014
ECON 302: Intermediate Macroeconomic Theory (Spring 2013-14) Discussion Section Week 7 March 7, 2014 SOME KEY CONCEPTS - Long-run Economic Growth - Growth Accounting - Solow Growth Model - Endogenous Growth
More informationChapter 6: Long-Run Economic Growth
Chapter 6: Long-Run Economic Growth Cheng Chen FBE of HKU October 12, 2017 Chen, C. (FBE of HKU) ECON2102/2220: Intermediate Macroeconomics October 12, 2017 1 / 59 Chapter Outline Discuss the sources of
More informationCheck your understanding: Solow model 1
Check your understanding: Solow model 1 Bill Gibson March 26, 2017 1 Thanks to Farzad Ashouri Solow model The characteristics of the Solow model are 2 Solow has two kinds of variables, state variables
More informationGrowth and Ideas. Martin Ellison, Hilary Term 2017
Growth and Ideas Martin Ellison, Hilary Term 2017 Recap of the Solow model 2 Production function is Cobb-Douglas with constant returns to scale in capital and labour - exponent of 1/3 on K Goods invested
More informationEconomic Growth: capital accumulation and innovation
ECON 184 Economic Growth: capital accumulation and innovation ECON 184 Economicg Growth I January 14, 2010 1 Questions from Cooper and Kevane readings How does Cooper describe the economic situation in
More informationECON 3020: ACCELERATED MACROECONOMICS. Question 1: Inflation Expectations and Real Money Demand (20 points)
ECON 3020: ACCELERATED MACROECONOMICS SOLUTIONS TO PRELIMINARY EXAM 03/05/2015 Instructor: Karel Mertens Question 1: Inflation Expectations and Real Money Demand (20 points) Suppose that the real money
More informationLecture notes 2: Physical Capital, Development and Growth
Lecture notes 2: Physical Capital, Development and Growth These notes are based on a draft manuscript Economic Growth by David N. Weil. All rights reserved. Lecture notes 2: Physical Capital, Development
More informationIntermediate Macroeconomics,Assignment 3 & 4
Intermediate Macroeconomics,Assignment 3 & 4 Due May 4th (Friday), in-class 1. In this chapter we saw that the steady-state rate of unemployment is U/L = s/(s + f ). Suppose that the unemployment rate
More informationEconomic Growth. (c) Copyright 1999 by Douglas H. Joines 1. Module Objectives
Economic Growth Module Objectives now what determines the growth rates of aggregate and per capita GDP Distinguish factors that affect the economy s growth rate from those that merely shift the level of
More informationShall we play a game? Solow growth model Steady state Break-even investment Rule of 70 Depreciation Dilution
National Income & Business Cycles Why growth matters? Learn the closed economy Solow model See how a country s standard of living depends on its saving and population growth rates Importance of productivity
More informationECON 450 Development Economics
ECON 450 Development Economics Classic Theories of Economic Growth and Development The Solow Growth Model University of Illinois at Urbana-Champaign Summer 2017 Introduction In this lecture we start the
More informationSGPE Summer School: Macroeconomics Lecture 5
SGPE Summer School: Macroeconomics Lecture 5 Recap: The natural levels of production and interest rate Y n = C( Y,Y e,r, A) + I ( r,y e, K) where Y n = F(K, E(1- u n )L) Capital stock was taken as exogenous
More informationSolow Growth Accounting
Econ 307 Lecture 3 Solow Growth Accounting Let the production function be of general form: Y = BK α L (1 α ) We call B `multi-factor productivity It measures the productivity of the composite of labour
More informationLecture 2: Intermediate macroeconomics, autumn 2012
Lecture 2: Intermediate macroeconomics, autumn 2012 Lars Calmfors Literature: Mankiw, Chapters 3, 7 and 8. 1 Topics Production Labour productivity and economic growth The Solow Model Endogenous growth
More informationSavings and Economic Growth
Savings and Economic Growth Savings and Economic Growth Question: How does the savings rate affect the long-run average growth rate of a country? Savings and Economic Growth Question: How does the savings
More informationECON 256: Poverty, Growth & Inequality. Jack Rossbach
ECON 256: Poverty, Growth & Inequality Jack Rossbach What Makes Countries Grow? Common Answers Technological progress Capital accumulation Question: Should countries converge over time? Models of Economic
More informationNotes on classical growth theory (optional read)
Simon Fraser University Econ 855 Prof. Karaivanov Notes on classical growth theory (optional read) These notes provide a rough overview of "classical" growth theory. Historically, due mostly to data availability
More informationCh.3 Growth and Accumulation. Production function and constant return to scale
1 Econ 302 Intermediate Macroeconomics Chul-Woo Kwon Ch.3 Growth and Accumulation I. Introduction A. Growth accounting and source of economic growth B. The neoclassical growth model: the Simple Solow growth
More information5.1 Introduction. The Solow Growth Model. Additions / differences with the model: Chapter 5. In this chapter, we learn:
Chapter 5 The Solow Growth Model By Charles I. Jones Additions / differences with the model: Capital stock is no longer exogenous. Capital stock is now endogenized. The accumulation of capital is a possible
More informationGrowth Growth Accounting The Solow Model Golden Rule. Growth. Joydeep Bhattacharya. Iowa State. February 16, Growth
Accounting The Solow Model Golden Rule February 16, 2009 Accounting The Solow Model Golden Rule Motivation Goal: to understand factors that a ect long-term performance of an economy. long-term! usually
More informationThe Solow Growth Model
The Solow Growth Model Model Background The Solow growth model is the starting point to determine why growth differs across similar countries it builds on the Cobb-Douglas production model by adding a
More informationECON 385. Intermediate Macroeconomic Theory II. Solow Model With Technological Progress and Data. Instructor: Dmytro Hryshko
ECON 385. Intermediate Macroeconomic Theory II. Solow Model With Technological Progress and Data Instructor: Dmytro Hryshko 1 / 35 Examples of technological progress 1970: 50,000 computers in the world;
More informationBeyond the Basic Solow Growth Model, Part 1 Agenda. The Basic Solow Growth Model. The Basic Solow Growth Model. The Basic Solow Growth Model
Beyond the Basic Solow Growth Model, Part genda The. Shortcomings The Growth ccounting Formula. The The : depends on v, n-dot, δ, and. Changes in v, δ, and lead to changes in the level of but they affect
More informationChapter 6: Long-Run Economic Growth
Chapter 6: Long-Run Economic Growth Yulei Luo SEF of HKU October 10, 2013 Luo, Y. (SEF of HKU) ECON2220: Macro Theory October 10, 2013 1 / 34 Chapter Outline Discuss the sources of economic growth and
More informationChapter 7 Capital, Innovation, and Growth Accounting
Chapter 7 Capital, Innovation, and Growth Accounting November 2, 2006 1 Introduction Neoclassical theory and AK theory focus on capital accumulation, whereas the product variety and Schumpeterian theories
More informationRicardian Model. Seyed Ali Madanizadeh. April Sharif U. of Tech. Seyed Ali Madanizadeh (Sharif U. of Tech.) Ricardian Model April / 24
Ricardian Model Seyed Ali Madanizadeh Sharif U. of Tech. April 2014 Seyed Ali Madanizadeh (Sharif U. of Tech.) Ricardian Model April 2014 1 / 24 Outline Introduction Ricardian Model setup Autarky and free
More informationINTERMEDIATE MACROECONOMICS
INTERMEDIATE MACROECONOMICS LECTURE 4 Douglas Hanley, University of Pittsburgh ECONOMIC GROWTH IN THIS LECTURE Why do countries grow economically? Why do some countries grow faster than others? Why has
More information1 Chapter 1: Economic growth
1 Chapter 1: Economic growth Reference: Barro and Sala-i-Martin: Economic Growth, Cambridge, Mass. : MIT Press, 1999. 1.1 Empirical evidence Some stylized facts Nicholas Kaldor at a 1958 conference provides
More information5.1 Introduction. The Solow Growth Model. Additions / differences with the model: Chapter 5. In this chapter, we learn:
Chapter 5 The Solow Growth Model By Charles I. Jones Additions / differences with the model: Capital stock is no longer exogenous. Capital stock is now endogenized. The accumulation of capital is a possible
More informationLong run growth 3: Sources of growth
International Economics and Business Dynamics Class Notes Long run growth 3: Sources of growth Revised: October 9, 2012 Latest version available at http://www.fperri.net/teaching/20205.htm In the previous
More informationSolow Residual Measure of Technical Change
Growth accounting is an explanation of economic growth. What is the contribution of labor growth to economic growth? What is the contribution of capital accumulation to economic growth? What is the contribution
More informationEconomic Growth Models and Inequality
Economic Growth Models and Inequality Prof. Goldstein Economic Demography Econ/Demog c175 Week 3: Lecture B Spring 2018 UC Berkeley econ c175 1 Today s agenda Solow cont. Technology Income Shares Piketty
More informationECON 6022B Problem Set 1 Suggested Solutions Fall 2011
ECON 6022B Problem Set Suggested Solutions Fall 20 September 5, 20 Shocking the Solow Model Consider the basic Solow model in Lecture 2. Suppose the economy stays at its steady state in Period 0 and there
More informationAdvanced Macroeconomics 8. Growth Accounting
Advanced Macroeconomics 8. Growth Accounting Karl Whelan School of Economics, UCD Spring 2015 Karl Whelan (UCD) Growth Accounting Spring 2015 1 / 20 Growth Accounting The final part of this course will
More informationPart 1: Short answer, 60 points possible Part 2: Analytical problems, 40 points possible
Midterm #1 ECON 322, Prof. DeBacker September 25, 2018 INSTRUCTIONS: Please read each question below carefully and respond to the questions in the space provided (use the back of pages if necessary). You
More information