Macroeconomic Models of Economic Growth
|
|
- Nicholas Ellis
- 5 years ago
- Views:
Transcription
1 Macroeconomic Models of Economic Growth J.R. Walker U.W. Madison Econ448: Human Resources and Economic Growth
2 Course Roadmap: Seemingly Random Topics First midterm a week from today. What have we covered and why this order? Random? 1. International Trade and Comparative Advantage. 2. Global Economic History and Industrial Revolution. 3. Macroeconomic models of Growth: Harrod Domar, Solow, et al.
3 Common thread: Economic Growth Comparative Advantage and International Trade Huge increase in international trade prior and esp during IR. (Ricardo) Comp Adv. Primary determinants of growth. Comparative advantage increased specialization increases economic efficiency. (Smith) Gains from trade source of growth, increased commercial activity raises income, demand for goods, more growth. Discussed Comp Adv and International Trade first to understand why mechanism is a source of economic growth.
4 Global Economic History The IR a watershed in human history as the start of sustained economic growth. Prior to 1750, periods of economic growth episodic. Recovery from famine, disease, pestilence. Global History to understand the uniqueness to the IR. Many spectacular empires and none greater than China, yet IR initiated in Britain and spread to Northwestern Europe.
5 Macroeconomic Models of Growth Industrial Revolution offers insight into determinants of economic growth. Large changes likely to identify significant factors. Growth models: develop systematic framework for analyzing and measuring (quantifying) growth process. 1. Postulate (formal) model; 2. Determine empirical predictions. 3. Investigate empirical predictions. 4. Never prove, can only falsify theory.
6 Toolkit Need broad set of skills to study economic growth and economic development. Primary tools of international trade, economic history, political economy, and now macroeconomics. Will study measurement of inequality, poverty, and investigate their consequences on individuals and the society. Will also study contract theory and the role of information and uncertainty. As you will see externalities and complementarities play a major role.
7 H D Model Assumes: s θ = g + n + δ. 1. Savings rate is constant, S(t) Y (t) = s. 2. Capital output ratio is constant, K (t) Y (t) = θ. Second assumption tantamount to assuming constant returns to scale.
8 H D Model What s the justification for CRS assumption? Reasonable to believe there is diminishing returns to scale. For fixed labor force, increase capital stock expect output to increase but (eventually) by less smaller and smaller amounts.
9 Solow: Endogenize Capital Output Ratio Retain the first assumption, constancy of the savings rate S(t) = sy (t) = I(t). Equation for the capital stock: K (t + 1) = (1 δ)k (t) + sy (t) Assume Labor = Population: L(t) = P(t), and that population grows at rate n each period. P(t + 1) = (1 + n)p(t)
10 Production Function The equation for the capital stock includes the term s Y Production function Y = F (K, L). Y = F (K, L) Y F (K, L) = L ( L Y K L = F L, L ) L ( ) K y = F L, 1 y = f (k)
11 Solow Model K (t + 1) = (1 δ)k (t) + sy (t), K (t + 1) = (1 δ) K (t) P(t) P(t) + s Y (t) P(t) K (t + 1) = (1 δ) k(t) + s y(t) P(t) ( ) 1 + n K (t + 1) = (1 δ)k(t) + sy(t) 1 + n P(t) (1 + n)k (t + 1) = (1 δ)k(t) + sy(t) P(t + 1)
12 Solow Model (1 + n)k(t + 1) = (1 δ)k(t) + sy(t) (3.9) (1 + n)k(t + 1) = (1 δ)k(t) + s f (k(t)) STEADY STATE k(t + 1) = k(t) = k (1 + n)k = (1 δ)k + sy [(1 + n) (1 δ)]k = sy (n + δ)k = sy k y = s n + δ
13 Interpretation Right hand side (RHS) two parts depreciated per capita capital and current per capita savings. Together they give us (almost) the new per capita stock. True if n = 0, but population growth puts downward drag on per capita capital stock. Hence, adjust for population growth by term 1 + n on LHS. Note: the larger the rate of population growth, the lower is the per capita capital stock the next period.
14 Figure 3.3 Production function y=f(k) Output per Capital Output--Capital Ratios 0 0 Capital per Capita (k)
15 Figure 3.4 (1+n)k (1- )k+sy k k(0) k* k
16 Steady State 1. if k(0) < k 2. if k(0) > k
17 Long Run Growth in Solow Model? In Solow model the savings rate has no long run effect on the rate of growth. (contrary to H D). What s the resolution between H D and Solow?
18 Level Effects versus Growth Effects Savings rate does not affect long run growth rate of per capita income, but affects the long run level of income. The steady state (k(t + 1) = k(t) = k ) and manipulating eqn 3.9 to yield k y = s n + δ Increase δ this lowers the RHS. But this means that the capital output ratio on the LHS must decline this means that k and y decline. What s the economic interpretation?
19 Population Growth Higher population growth, lowers the steady state level of per capita income. But the total income must grow faster as a result. Economy converges to a SS level of per capita income, which is impossible unless long run growth of total income equals the rate of population growth. Labor is both an input in production and a consumer of final goods. First raise total output and drives higher rate of growth of total income; second lowers savings and investment and brings down the SS level of per capita income.
20 Savings affects level Savings affects steady per capita income k y = s n + δ y = f (k) y = f (k ) f > 0, f < 0 k > y
21 Summary Solow Model [Pop Growth] The simplest Solow model (i.e., with exogenous population growth) savings does not produce long run growth. In the long run income per capita is constant and equal to the steady state value. Hence, need to extend the model to generate long run income growth as observed for the last two hundred (or so) years. We know from Global Economic History sustained economic growth requires technical progress, k(t) > 0.
22 Incorporate Technical Progress into Solow Model Distinguish between accumulation (k ) and innovation. We ve seen that accumulation is not sufficient to generate economic growth in the presence of diminishing marginal productivity. Can think of k as physical capital stock (machines) while technical progress is better and more advanced methods of production. KNOWLEDGE. Increase in knowledge can offset diminishing marginal returns to production. If so, economic growth (y) can increase indefinitely. The insight of Solow s model is that we need both innovation and capital deepening to produce sustained economic growth.
23 Exogenous Technical Progress Assume that technical progress contributes to efficiency or (economic) productivity of labor. Make distinction now between working population P(t) and effective population. L(t) L(t) = E(t)P(t) where E(t) is a scale of efficiency units that translates working population into units of effective population Thus with an increase in knowledge P(t) can be more efficient and thus represent a larger stock of labor. E(t + 1) = (1 + π)e(t) where, π is the rate of technical progress.
24 Labor Saving Technical Progress Equation of accumulation remains unchanged (3.8) K (t + 1) = (1 δ)k (t) + sy (t) Before divided by P(t) to express in per capita terms. Now divide by effective population E(t)P(t) (1 + n)(1 + π) ˆk(t + 1) = (1 δ) ˆk(t) + sŷ(t) where the carrot ˆx above a variable means per effective population.
25 Steady State Figure 3.6
26 Steady State Same logic as before (population growth) applies. Convince yourself That ˆk is the Steady State. What is the economic interpretation? That the capital per efficiency unit converges to a stationary steady state ( ˆk (t + 1) = ˆk (t)). But the per capita capital stock (k ) increases. Indeed, the long run increase in per capita income takes place precisely at the rate of technical progress!
27 Message: Solow Growth Model Solow model with technological progress yields sustained per capita growth of capital and income.
28 Empirical Evidence: Solow Model The empirical tests of the Solow model center on testing convergence. As you might expect, convergence comes in two forms: 1. Unconditional 2. Conditional (on savings and population growth rates)
29 Unconditional Convergence This is the strongest prediction (with the fewest assumptions) and the easiest to refute. Suppose that countries, in the long run, have no tendency to display difference in the rates of technical progress savings, population growth, and capital depreciation. The Solow model predicts then in all countries, capital per capita converges to the common value k, and this happens regardless of the initial state of each economy, as measured by their starting levels of per capita income (or equivalently per capita capital stock).
30 Meaning of Unconditional Convergence If the parameters governing the evolution of the economy are similar, then history in the sense of different initial conditions does not matter. Initial conditions is not some long ago level, but rather k(0) is the level of the per capita capital stock that we can first reasonably measure. In the long run, the starting point of the process does not matter. All possible histories converge at the steady state k. If empirically true this would be huge.
31 Illustration of Unconditional Convergence Log Per Capita Income A B C Time
32 Data IMPLEMENTATION ISSUE: Use a smaller set of countries over a long time period OR Use a larger set of countries over a shorter period of time.
33 Resolution to Data Choice Choice: Do Both. Informative to do both because the set of countries with data available for the longest time period are the current rich countries (OECD). Data available only recently for developing countries. Should we reject unconditional convergence on one set of countries but not the other may be evidence against unconditional convergence.
34 Evidence: Unconditional Convergence Ray discusses Baumol s study which concluded that unconditional convergence could not be rejected. Yet when the analysis was expanded to include more countries there is substantial evidence against unconditional convergence. Another piece of evidence: the standard deviation (dispersion) of per capita income among Western European countries declined over But among Asian countries over the same period dispersion increased. Moreover, the divergence dates back to 1900 (so not just a recent phenomenon).
35 Assessment Find predictions of unconditional convergence soundly rejected by the data. With free trade and the open exchange of ideas there are reasons to believe the rate of technological change should be the same across countries. Yet, not obvious why countries have the same rate of population growth or saving level. These considerations lead to the notion of conditional convergence.
36 Conditional Convergence Unconditional Convergence: assumes that across all countries, the level of technical knowledge (and its change), rate of savings, rate of population growth, and the rate of depreciation are the same. Countries differ in most if not all factors. Gives rise to the notion of conditional convergence: the growth rate of per capita income will be the same (in the long run). Assume that knowledge flows freely across countries. We allow other parameters such as the rate of population growth and rate of savings to differ across countries.
37 Level versus Growth Rates Again Thus as growth in per capita income determined by rate of technical progress, there should be convergence in growth rates. But the long run per capita income (level) will vary from country to country (b/c level determined by s and n). Called conditional convergence as we must factor out the effects of parameters that might differ across countries and then examine whether convergence occurs.
38 Testing Conditional Convergence 1. Assume the production function is Cobb Douglas Y = K α L 1 α 2. Divide by L to obtain per effective labor form: ŷ = ˆk α. 3. Manipulate to express ŷ as a function of s, n, π, δ α. 4. Take (natural) logs to get ln ŷ α 1 α ln s α ln(n + π + δ) (1) 1 α 5. Rewrite in terms of y, recognizing that L(t) = E(t)P(t), with E(t + 1) = (1 + π)e(t)
39 Testing Conditional Convergence (cont) The expression is: y = Y (t) P(t)E(t)(1 + π) t = y(t) E(0)(1 + π) t In logs: ln(y ) = ln y(t) ln E(0) t ln(1 + π) Substitute in for y in the right hand side of equation (1) [prev] to yield: ln y(t) (lne(0) + t ln(1 + π)) + ln y(t) κ 0 + κ 0 = (lne(0) + t ln(1 + π)) α 1 α ln s α ln(n + π + δ) 1 α α 1 α ln s α ln(n + π + δ) 1 α
40 Regression Equation Have used the theory to define the regression of log per capita income on a constant term κ 0, the log of savings rate and the log of the sum of rate of population growth, rate of depreciation and rate of technical change. Run regression at a point in time across countries i, z i = ln(y i ) = β 0 + β 1 x 1i + β 2 x 2i + ɛ i with x 1i the log of savings for country i, and x 2i is the log sum of n i, π, δ. Estimated Coefficient b 0 recovers an estimate of κ 0 α 1 α Estimated coefficient b 1 recovers an estimate of Estimated coefficient b 2 recovers an estimate of α 1 α
41 Testable Predictions Written in this way, the testable implications of the theory are obvious. b 1 should be positive, while b 2 should be negative. AND b 1 = b 2. Not only have a prediction on the algebraic sign, but on the magnitudes. α is the share of capital in national income accounts which is roughly 1/3. Thus, we expect b 1 = 1/2 = b 2.
42 Mankiw, Romer, Weil (1992) They used the Heston Summers data set. Assumed π + δ = Used the investment GDP ratios to measure savings rate over The variable y is per capita GDP in Results: 1. Regression explains more than half the worldwide variation in per capita GDP in b 1 > 0 and b 2 < 0, both statistical significant (i.e., not the result of sampling variation). 3. Estimated coefficients b 1 = 1.42 and b 2 = 1.97 not close to the expected 1/2. Nor are the estimated coefficients of similar magnitude (b 1 = b 2 ). Savings effect smaller (in absolute value than population growth rate).
43 Assessment Many other studies obtain results similar to MRW (1992) Some evidence (at least in terms of direction) in support of Solow growth model. But we can t rest assuming that savings and population should be equal and opposite in magnitude. And find consistently that this assumption is false. We can assume the problem away and say that differences are due to preferences to save or procreate, or perhaps differences due to culture of social differences. Empty. What are the economic incentives and determines for savings rates and population growth rates to have different effects across countries?
Macroeconomic 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 informationECON 450 Development Economics
ECON 450 Development Economics Classic Theories of Economic Growth and Development The Empirics of the Solow Growth Model University of Illinois at Urbana-Champaign Summer 2017 Introduction This lecture
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 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 informationApplied Economics. Growth and Convergence 1. Economics Department Universidad Carlos III de Madrid
Applied Economics Growth and Convergence 1 Economics Department Universidad Carlos III de Madrid 1 Based on Acemoglu (2008) and Barro y Sala-i-Martin (2004) Outline 1 Stylized Facts Cross-Country Dierences
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 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 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 informationECO 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 informationTraditional growth models Pasquale Tridico
1. EYNESIN THEORIES OF ECONOMIC GROWTH The eynesian growth models are models in which a long run growth path for an economy is traced out by the relations between saving, investements and the level of
More informationFact: Economic growth is a modern phenomenon. Appreciable per capita income growth was the exception rather than the rule.
Chapter 3: Economic Growth Quoting Robert Lucas, Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia s or Egypt s? If so, what, exactly? If not,
More informationTopic 2. Productivity, technological change, and policy: macro-level analysis
Topic 2. Productivity, technological change, and policy: macro-level analysis Lecture 3 Growth econometrics Read Mankiw, Romer and Weil (1992, QJE); Durlauf et al. (2004, section 3-7) ; or Temple, J. (1999,
More informationTesting the Solow Growth Theory
Testing the Solow Growth Theory Dilip Mookherjee Ec320 Lecture 5, Boston University Sept 16, 2014 DM (BU) 320 Lect 5 Sept 16, 2014 1 / 1 EMPIRICAL PREDICTIONS OF SOLOW MODEL WITH TECHNICAL PROGRESS 1.
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
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 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 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 informationChapter 3 PHYSICAL CAPITAL. Copyright 2013 Pearson Education, Inc. Publishing as Addison-Wesley
Chapter 3 PHYSICAL CAPITAL A few things before starting Database on WB indicators http://data.worldbank.org/products/wdi Nature of capital Capital is productive But it is has been produced itself through
More information202: Dynamic Macroeconomics
202: Dynamic Macroeconomics Solow Model Mausumi Das Delhi School of Economics January 14-15, 2015 Das (Delhi School of Economics) Dynamic Macro January 14-15, 2015 1 / 28 Economic Growth In this course
More information004: Macroeconomic Theory
004: Macroeconomic Theory Lecture 16 Mausumi Das Lecture Notes, DSE October 28, 2014 Das (Lecture Notes, DSE) Macro October 28, 2014 1 / 24 Solow Model: Golden Rule & Dynamic Ineffi ciency In the last
More informationTesting the predictions of the Solow model:
Testing the predictions of the Solow model: 1. Convergence predictions: state that countries farther away from their steady state grow faster. Convergence regressions are designed to test this prediction.
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 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 Lecture 2: The Solow Growth Model with Technical Progress
Macroeconomics Lecture 2: The Solow Growth Model with Technical Progress Richard G. Pierse 1 Introduction In last week s lecture we considered the basic Solow-Swan growth model (Solow (1956), Swan (1956)).
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 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 informationSolow instead assumed a standard neo-classical production function with diminishing marginal product for both labor and capital.
Module 5 Lecture 34 Topics 5.2 Growth Theory II 5.2.1 Solow Model 5.2 Growth Theory II 5.2.1 Solow Model Robert Solow was quick to recognize that the instability inherent in the Harrod- Domar model is
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 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 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 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 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 informationh Edition Economic Growth in a Cross Section of Countries
In the Name God Sharif University Technology Graduate School Management Economics Economic Growth in a Cross Section Countries Barro (1991) Navid Raeesi Fall 2014 Page 1 A Cursory Look I Are there any
More informationSavings, 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 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 informationChapter 8 Economic Growth I: Capital Accumulation and Population Growth
Chapter 8 Economic Growth I: Capital Accumulation and Population Growth Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all
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 informationGrowth and Inflation: A Cross-Country Study
Growth and Inflation: A Cross-Country Study Brian Motley Research Officer, Federal Reserve Bank of San Francisco. An earlier version of this paper was presented at the conference Monetary Policy in a Low
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 informationTesting the predictions of the Solow model: What do the data say?
Testing the predictions of the Solow model: What do the data say? Prediction n 1 : Conditional convergence: Countries at an early phase of capital accumulation tend to grow faster than countries at a later
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 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 informationIntroduction to economic growth (3)
Introduction to economic growth (3) EKN 325 Manoel Bittencourt University of Pretoria M Bittencourt (University of Pretoria) EKN 325 1 / 29 Introduction Neoclassical growth models are descendants of the
More informationA test of the Solow Groth Model. Willem Elbers Joop Adema Derck Stäbler. May 29, 2015
A test of the Solow Groth Model Willem Elbers Joop Adema Derck Stäbler May 29, 2015 Abstract In this paper, we investigate the relationship between the savings rate and aggregate output per worker. Using
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 informationON THE GROWTH OF DEVELOPING COUNTRIES
ON THE GROWTH OF DEVELOPING COUNTRIES By MATT GERKEN A SENIOR RESEARCH PAPER PRESENTED TO THE DEPARTMENT OF MATHEMATICS AND COMPUTER SCIENCE OF STETSON UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
More informationCHAPTER 11. SAVING, CAPITAL ACCUMULATION, AND OUTPUT
CHAPTER 11. SAVING, CAPITAL ACCUMULATION, AND OUTPUT I. MOTIVATING QUESTION Does the Saving Rate Affect Growth? In the long run, saving does not affect growth, but does affect the level of per capita output.
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 informationECON Chapter 6: Economic growth: The Solow growth model (Part 1)
ECON3102-005 Chapter 6: Economic growth: The Solow growth model (Part 1) Neha Bairoliya Spring 2014 Motivations Why do countries grow? Why are there poor countries? Why are there rich countries? Can poor
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 informationMidterm Examination Number 1 February 19, 1996
Economics 200 Macroeconomic Theory Midterm Examination Number 1 February 19, 1996 You have 1 hour to complete this exam. Answer any four questions you wish. 1. Suppose that an increase in consumer confidence
More informationEconomic Growth and Convergence across the OIC Countries 1
Economic Growth and Convergence across the OIC Countries 1 Abstract: The main purpose of this study 2 is to analyze whether the Organization of Islamic Cooperation (OIC) countries show a regional economic
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 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 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 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 informationLECTURE 3 NEO-CLASSICAL AND NEW GROWTH THEORY
B-course06-3.doc // Peter Svedberg /Revised 2006-12-10/ LECTURE 3 NEO-CLASSICAL AND NEW GROWTH THEORY (N.B. LECTURE 3 AND 4 WILL BE PRESENTED JOINTLY) Plan of lecture A. Introduction B. The Basic Neoclassical
More information3. Which of the following assertions CLEARLY DOES NOT correspond to what you learned in this course?
ECO2143 Macroeconomic Theory II First mid-term examination: February 4th, 2008 University of Ottawa Professor: Louis Hotte Time allowed: 1h 20min Attention: Not all questionnaires are the same. This is
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 informationMacroeconomics II. Growth. Recent phenomenon Great diversity of growth experiences across countries. Why do some countries grow and others not?
Macroeconomics II Growth Growth Theory Facts about growth Recent phenomenon Great diversity of growth experiences across countries What drives growth? Inputs Technology Why do some countries grow and others
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 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 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 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 informationWRITTEN PRELIMINARY Ph.D EXAMINATION. Department of Applied Economics. Spring Trade and Development. Instructions
WRITTEN PRELIMINARY Ph.D EXAMINATION Department of Applied Economics Spring - 2005 Trade and Development Instructions (For students electing Macro (8701) & New Trade Theory (8702) option) Identify yourself
More informationSOLUTIONS TO MIDTERM EXAMINATION
Ec 320, Fall 2007 Dilip Mookherjee SOLUTIONS TO MIDTERM EXAMINATION 1. Indicate whether you agree or disagree with the following statements, whether partially or fully, or subject to suitable qualifications
More informationConditional Convergence: Evidence from the Solow Growth Model
Conditional Convergence: Evidence from the Solow Growth Model Reginald Wilson The University of Southern Mississippi The Solow growth model indicates that more than half of the variation in gross domestic
More informationLECTURE 3 NEO-CLASSICAL AND NEW GROWTH THEORY
Intermediate Development Economics 3/Peter Svedberg, revised 2009-01-25/ LECTURE 3 NEO-CLASSICAL AND NEW GROWTH THEORY (N.B. LECTURE 3 AND 4 WILL BE PRESENTED JOINTLY) Plan of lecture A. Introduction B.
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 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 informationME II, Prof. Dr. T. Wollmershäuser. Chapter 12 Saving, Capital Accumulation, and Output
ME II, Prof. Dr. T. Wollmershäuser Chapter 12 Saving, Capital Accumulation, and Output Version: 23.06.2010 Saving, Capital Accumulation, and Output The effects of the saving rate the ratio of saving to
More informationECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter 8 - Economic Growth Towson University 1 / 64
ECON 202 - MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University J.Jung Chapter 8 - Economic Growth Towson University 1 / 64 Disclaimer These lecture notes are customized for the Macroeconomics
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 Four facts on the U.S. historical growth experience, aka the Kaldor facts
1 Four facts on the U.S. historical growth experience, aka the Kaldor facts In 1958 Nicholas Kaldor listed 4 key facts on the long-run growth experience of the US economy in the past century, which have
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 informationThe Solow Growth Model
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, 2017 1 / 46 Economic Growth Facts 1 In the data,
More informationE-322 Muhammad Rahman CHAPTER-6
CHAPTER-6 A. OBJECTIVE OF THIS CHAPTER In this chapter we will do the following: Look at some stylized facts about economic growth in the World. Look at two Macroeconomic models of exogenous economic growth
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 informationLastrapes Fall y t = ỹ + a 1 (p t p t ) y t = d 0 + d 1 (m t p t ).
ECON 8040 Final exam Lastrapes Fall 2007 Answer all eight questions on this exam. 1. Write out a static model of the macroeconomy that is capable of predicting that money is non-neutral. Your model should
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 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 informationIntermediate Macroeconomics
Intermediate Macroeconomics Lecture 5 - Endogenous growth models Zsófia L. Bárány Sciences Po 2014 February Recap: Why go beyond the Solow model? we looked at the Solow model with technological progress
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 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 informationTrade and Development
Trade and Development Table of Contents 2.2 Growth theory revisited a) Post Keynesian Growth Theory the Harrod Domar Growth Model b) Structural Change Models the Lewis Model c) Neoclassical Growth Theory
More informationTopic 3: Endogenous Technology & Cross-Country Evidence
EC4010 Notes, 2005 (Karl Whelan) 1 Topic 3: Endogenous Technology & Cross-Country Evidence In this handout, we examine an alternative model of endogenous growth, due to Paul Romer ( Endogenous Technological
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 informationmacro macroeconomics Economic Growth I Economic Growth I I (chapter 7) N. Gregory Mankiw
macro Topic CHAPTER 4: SEVEN I (chapter 7) macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved (ch. 7) Chapter 7 learning objectives
More informationECONOMIC GROWTH 1. THE ACCUMULATION OF CAPITAL
ECON 3560/5040 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 differences
More informationChapter 6. Endogenous Growth I: AK, H, and G
Chapter 6 Endogenous Growth I: AK, H, and G 195 6.1 The Simple AK Model Economic Growth: Lecture Notes 6.1.1 Pareto Allocations Total output in the economy is given by Y t = F (K t, L t ) = AK t, where
More informationINTRODUCTION TO ECONOMIC GROWTH. Dongpeng Liu Department of Economics Nanjing University
INTRODUCTION TO ECONOMIC GROWTH Dongpeng Liu Department of Economics Nanjing University ROADMAP INCOME EXPENDITURE LIQUIDITY PREFERENCE IS CURVE LM CURVE SHORT-RUN IS-LM MODEL AGGREGATE DEMAND AGGREGATE
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 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 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 informationDo Arms Exports Stimulate Economic Growth?
Do Arms Exports Stimulate Economic Growth? Pavel Yakovlev Department of Economics College of Business and Economics West Virginia University Morgantown, WV 26505 Pavel.Yakovlev@mail.wvu.edu Draft Date:
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 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 informationY t )+υ t. +φ ( Y t. Y t ) Y t. α ( r t. + ρ +θ π ( π t. + ρ
Macroeconomics ECON 2204 Prof. Murphy Problem Set 6 Answers Chapter 15 #1, 3, 4, 6, 7, 8, and 9 (on pages 462-63) 1. The five equations that make up the dynamic aggregate demand aggregate supply model
More informationThe Effect of Interventions to Reduce Fertility on Economic Growth. Quamrul Ashraf Ashley Lester David N. Weil. Brown University.
The Effect of Interventions to Reduce Fertility on Economic Growth Quamrul Ashraf Ashley Lester David N. Weil Brown University December 2007 Goal: analyze quantitatively the economic effects of interventions
More information