3 - Endogenous Growth Theory Flashcards
Key things about the endogenous growth theory (spoke about this theory in lecture 1)
- Research and development, fostering innovation, innovation and imitation (Frontier theory)
- Education and training
- Human capital, learning by doing, spill over effect
- Knowledge is public good
- No subject to diminishing return
What are supply side policies (market-oriented policy) (expansionary fiscal policies)
Measures governments take to increase availability or affordability of goods and services, along with policies that may encourage people to be more productive
How’s tax cutting a supply side policy
- Tax cut = Increases take-home pay for workers, providing individuals stronger incentive to work.
- Lower taxes attracts FDI increasing capital inflows and job creation
- More disposable income, therefore more consumption increasing economic growth
How’s reducing power of labour a supply side policy
- Reducing power of labour aims to increase the productivity and efficiency of businesses
- This reduces labour costs, creating an incentive for businesses to invest and expand , leading to increased production and economic growth
- Government can reduce power of labour by making it easier for employers to hire and fire workers, adjust wages and negotiate labour contracts
- May also introduce policies that limit power of trade unions
How’s a cut in benefits a supply side policy
- Cutting unemployment benefits will reduce government spending
- Also, Encourage the unemployed to seek employment and therefore increase the labour supply
What are interventionist policies
This is where the government takes intentional actions to intervene in the functioning of markets or industries with the goal of achieving specific economic or social outcomes
5 examples of interventionist policies
- Nationalisation
- Direct provision
- Funding research and development (R&D)
- Training and education
- Advice, information and collaboration
What is nationalisation (interventionist policy)
Involves the government taking ownership and control of private enterprises
- governments may nationalise industries for strategic, economic or social reasons
What is direct provision (interventionist policy)
Where goods or services are provided directly from the government, rather than relying on market forces
- E.g. healthcare and education, or providing financial support through subsidies or welfare
What is Research and development (R&D) (Interventionist policy)
Government allocating funds to support research and development activities
- This is a form of intervention aimed at promoting innovation, technological advancement and economic competitiveness
What is training and education (interventionist policy)
The government invests in education and training programs
- Government intervention in education and training to improve the skills and human capital of the workforce, enhancing productivity and employability
What is advice, information and collaboration (interventionist policy)
Government provides advice, information and encourages collaboration between various stakeholders
- Governments may intervene by offering guidance, information and fostering collaboration to achieve economic or social goals. This can include initiatives to support business development, promote environmental sustainability or address public health challenges
What are the supply side policies: Market-oriented policy
- Tax cut
- Reduce power of labour
- A cut in unemployment benefits
What are the supply-side policies: Interventionist policy
- Nationalisation
- Direct provision
- Funding Research and development (R&D)
- Training and education
- Advice, information and collaboration
Limits of endogenous growth theory
- Asymmetric information, people know how much knowledge they have and their potential returns on their investments, more than the government who invests
- Doesn’t take into account demand-side policies
- Copyright regarding innovation
- Assume perfect competition, may not reflect real world markets. Other markets may affect benefits of innovation and knowledge creation
- Assumes no diminishing returns to knowledge. In reality, there might be limits to productivity gains achieved through additional investments in R&D
