Catching up, Forging Ahead and Falling Behind Flashcards
Important Data
Abramovitz (1986): catch-up growth
+ Lewis (1954): dual-sector model
+ Swan (1956): neoclassical growth model
+ Habakkuk (1962): economic prerequisite for technological transfer
+ Allen (2009): factor price theory
+ Edgerton (2006): old technology for economy
+Gerschenkron (1962): pre-requisites for growth
Solow (1956): solow growth model
1998 literature: conventional factors on why USA overtook Britain
Broadberry (1998): actual factors that made USA overtake Britain
Wright (1990): non-reproducible natural resources as primary US manufacturing export
Broadberry and O’Rourke (2010): relationship btwn GDP per capita and sectoral shift
What is the concept of catch-up growth?
A concept where the more backward a country is in terms of technology and productivity, the greater potential for rapid catch-up growth
What are the assumptions of catch-up growth?
That the country is :
1. technologically backward
but has:
2. social capabilities
1) strong work mentality through economic incentives
2) quality institutions
3) higher education attainment (human capital)
4) technological competence
- conditions favourable to realisation of potential
-> allows the technologically backward country to exploit best-practice tech
-> experience economic growth
-> enabled country to catch up
What are the implications of catch-up growth for the global economy?
- Affects a country’s position in international trade
Developed countries:
presumably greater efficiency and productivity
-> greater quantity/quality of products offered
Developing coutnries:
improper institution, developing infrastructure, inefficiency in production
-> affects quantity/quality of output to offer - Assuming developing countries do end up catching up
-> larger number of developed countries at the steady state rate of growth in Solow growth model
-> theoretically higher global economic productivity as more countries will be producing optimally
What are the limitations of catch-up growth hypothesis?
Assumes economies have social capabilities and favourable conditions for the realisation of potential -> unrealistic
What’s the conventional factors of why USA was able to overtake Britain?
Benefitted from: 30,000,000 migrants (60% of 50 million who went to North and South America) from Europe and intensive growth as income per capita rose rapidly relative to Europe
Recent literature in 1998 believes that:
USA overtook Britain in terms of manufacturing productivity (comparative labour productivity at an aggregate level) through:
1. rise of US system of mass production (based on assembly line and interchangeable parts)
2. ‘Managerial and production revolution’ (by Alfred D. Chandler): rise of modern management (w/ trained managers, mass distribution and advertising) -> rising labour productivity
Effect: global economic leader by 1890s
What factors did Broadberry argue allowed USA to overtake Britain?
Broadberry (1998):
1. Sectoral shift
1) From agriculture to industry and rising productivity in USA service and agricultural sectors
2) Data: Table 2 (measured in output per worker, holding UK labour productivity constant at 100.00)
US labour productivity levels in manufacturing has always been twice as productive than UK since 1910 (at 201.9) until 1968 (263.7)
UK was more labour productive than US in finance/serices sector (20.9 higher in 1910, and 10 higher in 1930)
Structural change (agriculture to industry) and labour productivity by sector were more important than managerial revolution
- Factory endowments
-> Primarily driven by comparative success in exploitation due to
1) geological endowment
2) social capabilities (Wright, 1990)
-> enabled producing and exporting raw-material-intensive manufactured goods e,g, non-reproducible natural resources - Different consumer demand conditions
USA:
-large, relatively homogenous domestic market
-rapidly growing population because of mass migration
-consumers broadly accepting of mass-produced goods
Britain/Europe:
-smaller national markets
-British Empire markets =/ homogeneous
-consumers more resistant to standardised goods - Technology (implications of technological choices)
Recall: economies economise on scarce, expensive factors
USA adopted capital-intensive technology bc they were land abundant and labour scarce
-> unsuitable to adopt in Europe where land was scarce and labour was abundant
Britain: not a high-wage economy when compared to USA
What is the concept of Sectoral Shift (structural change)?
Process where majority of the labour force shifts from
agriculture (primary sector)
to industrialisation (secondary sector)
and ultimately to services (tertiary sector)
Simply put:
developing country can converge with leading economies by shifting the employment in agriculture (relatively unproductive) to industry,
where marginal product of labour is higher (return from each worker is more productive for economy)
//Sectoral Shift example
Broadberry and O’Rourke (2010):
1870-1913:
European countries with large agricultural sectors remained poor (unproductive relative to industry)
Countries that shifted labour force to industry and services were better off (marginal product of labour increased -> output increased -> GDP grew per capita grew)
Relationship between GDP per capita and sectoral allocation of labour to industry & services was positively related
//What is Lewis model?
Lewis (1954):
Dual-sector model where developing economy’s capital accumulation process for their industrial sector relies on
1) availability of surplus labour in agriculture
2) profits in industry
Country example: Soviet Union
What are the implications of Sectoral Shift (structural change)?
Economy shifts from agriculture to industry and services ->
1. productivity gains (shown by Lewis model, 1954)
-> developing country at low levels of development has surplus labour bc MPL in agriculture: 0, whilst MPL in industry > 0
-> transfer labour from agriculture to industry without losing output in agriculture
-> whole economy gains in productivity from sectoral shift
- supply of labour in industry is effectively elastic
-> industry initially pays low wages and to be profitable during structural shift
-> reinvested profits raises MPL
-> demand for industrial labour increases
-> industrial wages rise
-> exhausts labour surplus from agriculture until none left
//What is the neoclassical growth model?
Swan (1956):
Model that predicts an economy that has fallen behind in economic growth can catch-up and converge through
1) productive capital investment
or
2) adopting best practice technology
Where structural change acts as a transfer of resources from low-labour productive sector (agriculture) to high-labour productive sector (industry and manufacturing)
What are the factors that underpinned the process of technological diffusion?
- Structural shift from agriculture to industrialisation which required mechanisation to produce greater output and fulfill market demand of goods
- Trade between countries -> market integration
- Knowledge exchange between countries
- Structure of high wages -> incentivise entrepreneurs to substitute labour with capital -> invention of machinery through technology
//What are the technological concerns in technology transfer?
Country/economy must have either
1) prerequisites to adopt the new technology
or
2) it must be tinkered to suit its new environment
e.g. electric cars: doesn’t pollute air, cheaper maintenance bc of lesser moving parts
-> positive economic externalities for environment and human lives
but: adoption relies on infrastructure to recharge it, cant be adopted elsewhere unless infrastructure exists to use the tech
//What are the economic concerns in technolgy transfer?
- Factors of production supply and demand for technology
Habakkuk (1962):
Country’s economic prerequisite: adopt technologies that meet:
1) factor endowments
2) demand conditions - Level of wages
Allen (2009):
Factor price theory: technology transfer may not be profitable in a low-wage economy
Example: British textile industry technology was invented in high-wage economy of Britain -> incentivised development of capital to substitute for labour - Suitability of tech
Edgerton (2006):
Old technologies may be the best option for an economy if it’s environmentally suitable even if there’s a new alternative so long as the old tech isn’t inefficient
Country should adopt appropriate technology based on relative price for factors of production
