1、1,Chapter 5 Conditional Convergence and Long-Run Economic Growth,2,Conditional Convergence in Practice,3,Conditional Convergence in Practice,Three variables that influenced k*: Saving rate, s. Technology level, A. Population growth rate, n.,4,Conditional Convergence in Practice,A broader view of the
2、 technology level, A.Productivity depends on the degree of market efficiency. Greater international openness tends to raise productivity. Productivity tends to rise if governments do better at maintaining private property rights, if the judicial system runs more smoothly, and if official corruption
3、declines.,5,Recent Research on the Determinants of Economic Growth,k/k = k(0), k*.(-) (+)The idea is to measure an array of variables, each of which influences a countrys steady-state capital per worker, k*.,6,Recent Research on the Determinants of Economic Growth,First, if we hold fixed k* (by hold
4、ing fixed the variables that influence k*), the growth rate of capital per worker, k/k, should exhibit convergence. That is, for given k*, a lower k(0) should match up with a higher k/k. Second, any variable that raises or lowers k* should correspondingly raise or lower k/k for given k(0).,7,Recent
5、Research on the Determinants of Economic Growth,8,Recent Research on the Determinants of Economic Growth,Hold constant a list of variables that influence k*. a measure of the saving rate; the fertility rate for the typical woman (which influences population growth); subjective measures of maintenanc
6、e of the rule of law and democracy; the size of government, as gauged by the share of government consumption expenditures in GDP;,9,Recent Research on the Determinants of Economic Growth, the extent of international openness, measured by the volume of exports and imports; changes in the terms of tra
7、de, which is the ratio of prices of exported goods to prices of imported goods; measures of investment in education and health; the average rate of inflation, which is an indicator of macroeconomic policy.,10,Recent Research on the Determinants of Economic Growth,Growth rate of real GDP per person r
8、ises in response to a higher saving rate, lower fertility, better maintenance of the rule of law, smaller government consumption, greater international openness, improvement in the terms of trade, greater quantity and quality of education, better health, and lower inflation.,11,Recent Research on th
9、e Determinants of Economic Growth,Democracy has a less clear effectif a country starts from a totalitarian system, increases in democracy seem to favor economic growth. However, after a country reaches a mid-range of democracy (characteristic in recent years of Indonesia, Turkey, and several places
10、in Latin America), further democratization seems to reduce growth.,12,Recent Research on the Determinants of Economic Growth,Numerous additional variables that influence growth. scope of financial markets, the degree of income inequality, the extent of official corruption, the role of colonial and l
11、egal origins, The intensity of religious participation and beliefs.,13,Examples of Conditional Convergence,By 1946, Japan, Germany, France, and other countries in Europe suffered sharp reductions in physical capital, which resulted in a low starting value of capital per worker, k(0). In the 1960s, m
12、any East Asian countries, such as South Korea and Taiwan, were poor and, therefore, had low values of k(0).,14,Long-Run Economic Growth,Solow model does not explain how capital and real GDP per worker, k and y, grow in the long run. The model does not explain how real GDP per person grew at around 2
13、% per year for well over a century in the United States and other rich countries.,15,Long-Run Economic Growth,We allow for technological progress in the sense of continuing growth of the technology level, A. A grows in an exogenous manner.,16,Models with Constant Average Product of Capital,The dimin
14、ishing average product of capital, y/k, plays a major role in the transition phase of the Solow growth model.k/k = s(y/k) (+n).,17,Models with Constant Average Product of Capital,Interpret capital broadly, especially to include human capital in the forms of formal education, on-the-job training, and
15、 health. Include forms of capital that are often owned by government, such as infrastructure capital used for transportation and utilities.,18,Models with Constant Average Product of Capital,If we double not only machines and buildings but also human and infrastructure capital, real GDP may roughly
16、double.If raw labor is not a critical input to production, capitals marginal and average products may not decline as capital accumulates.,19,Models with Constant Average Product of Capital,20,Models with Constant Average Product of Capital,y/k = A.k/k = sA (+n).,21,Models with Constant Average Produ
17、ct of Capital,22,Exogenous Technological Progress,Allow for continuing increases in A. This regular process of improvements in the technology is called technological progress. A/A = g.,23,Exogenous Technological Progress,24,Exogenous Technological Progress,25,Exogenous Technological Progress,26,Exog
18、enous Technological Progress,27,Exogenous Technological Progress,Since the average product of capital, y/k, is constant during steady-state growth, the numerator of the ratio, y, must grow at the same rate as the denominator, k. (y/y)* = (k/k)*.,28,Exogenous Technological Progress,29,Exogenous Techn
19、ological Progress,30,Exogenous Technological Progress,31,Exogenous Technological Progress,Exogenous technological progress at the rate A/A = g allows for long-term growth in real GDP and capital per worker at the rate g/(1-).The technological progress offsets the tendency for the average product of
20、capital, y/k, to fall when k rises and, thereby, allows for long-term growth in real GDP and capital per worker.,32,Exogenous Technological Progress,Growth rate of real GDP per person in the United States averaged 2.0% per year from 1869 to 2003. If we think of as the share of capital income and use
21、 values for between 1/3 and 1/2, the required value for g is a little over 1% per year.,33,Exogenous Technological Progress,34,Exogenous Technological Progress,35,Exogenous Technological Progress,36,Exogenous Technological Progress,37,Exogenous Technological Progress,38,Endogenous Technological Prog
22、ress,Romer and others developed are called endogenous growth models. The model explains the rate of technological progress. The technological progress leads to long run growth of real GDP and capital per worker.,39,Endogenous Technological Progress,Most endogenous growth models focus on businesss in
23、vestments in research and development or R&D. This endogeneity of technological progress means that we can use the model to understand how government policies and other variables influence R&D investment and, thereby, the rate of technological progress and the long-run growth rate of real GDP per pe
24、rson.,40,Endogenous Technological Progress,Theories of technological progress specify a connection between R&D investment and the amount of technological advance, represented by increases in A.,41,Endogenous Technological Progress,In many respects, R&D investment resembles the familiar investment in
25、 physical capital. Two important differences: diminishing returns ownership rights.,42,Endogenous Technological Progress,Intellectual property rights. Patents Copyrights,43,Endogenous Technological Progress,Paul Romer (1990) constructed the first model in which R&D investment and intellectual proper
26、ty rights were linked to a theory of technological progress and economic growth.,44,Endogenous Technological Progress,The private return to R&D investment is higher if the costs of R&D are lower in relation to the effects of successful innovations on sales revenues and production costs. The private
27、return is higher if intellectual property rights over the use of an invention are more secure and long-lasting. The private return is higher if the government subsidizes R&D investment.,45,The Diffusion of Technology,For an individual country or producer, it is possible to raise Athe technology leve
28、l available to that country or producerby imitating or adapting someone elses innovation. We use the term diffusion of technology to describe the imitation and adaptation of one countrys technology by another country.,46,The Diffusion of Technology,Low-income countries tend to focus on diffusion of
29、technology as the way to raise technology levels. In one case, a multi-national firm from an advanced country uses an advanced technology in a foreign subsidiary. Sometimes the transfer of technology occurs through observation and analysis of products exchanged in international trade.,47,The Diffusi
30、on of Technology,The diffusion of technology provides another reason why poor countries tend to converge toward rich ones. Studies show that the rate of technological diffusion to a developing country is higher when the country has a lot of international trade with rich countries, high education lev
31、els, and well-functioning legal and political systems.,48,Summarizing What We Know about Economic Growth,We can think of Solow growth model as having two phases. In the first phase, capital and real GDP per worker rise from their initial levels to their steady-state levels. The second phase is the s
32、teady state. In chapters 3 and 4, capital and real GDP per worker did not grow in the long run, that is, in the steady state.,49,Summarizing What We Know about Economic Growth,The inclusion of technological progress led to growth of capital and real GDP per worker in the steady state. We used the So
33、low model to predict the short- and long-run effects from changes in the saving rate, the technology level, the size of the labor force, and population growth.,50,Summarizing What We Know about Economic Growth,We showed how the transition phase of the model predicted convergence, by which we mean a
34、tendency of poor economies to catch up to rich economies. We found that absolute convergence conflicted with observations for a broad group of countries but that a modified conceptconditional convergencewas consistent with these observations.,51,Summarizing What We Know about Economic Growth,We showed that the model would explain a long-term growth rate of around 2% per year if we assumed exogenous technological progress at a rate of about 1% per year. Endogenous growth models Technological diffusion,
