ch 6 Flashcards

1
Q

The Solow model

A

He emphasized that it was higher savings rates, which finance greater investment, that is behind economic growth.
Investment allows for physical capital accumulation.
Capital accumulation is an engine of growth because as the economy acquires factories, equipment, roads, infrastructure, etc., it becomes more productive and this increases per-capita income.

It is a very simple and powerful idea, with lack of access to capital, levels of income per-capita are limited.
Higher investment and capital accumulation allows greater productivity, and a fast-growing economy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The Production Function and law of diminishing returns

A

In conclusion, more saving leads to more investment, and that leads to economic development.
However, the neoclassical production function, as appears to be estimated by many economists, embodies the law of diminishing returns (decreasing marginal returns)
Eventually, if a country continues to accumulate physical capital, it will run out of profitable investment opportunities and its economic growth will slow down.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Diminishing Returns

A

For low-income countries which are beginning the process of growth, the initial Solow model framework certainly makes a lot of sense.
Solow himself questioned whether it applies for countries like the USA and other Western countries, which have been industrializing since the nineteenth century.
He thought that for these countries, movements along the production function would have reached the point of diminishing returns.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Immigration and innovation

A

The arrival of immigrants may transfer technology between countries.
Immigrants are creative and innovative people that converts them into an important factor input into the process of technological progress.
Immigrants carry ideas with them and the arrival of ideas from abroad
Importing ideas through immigration is likely to be less costly than ideas through original research.
If it becomes less costly to innovate, then creative destruction occurs more frequently and this has a positive impact on technological progress
A binding constraint in generating innovations is the supply of highly talented scientists, engineers, and other technical personnel.
Immigration helps relax this constraint
more phds, more taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Immigration and entrepreneurship

A

Immigrants may represent human resources that are especially appropriate for entrepreneurship.
Immigrants are likely to be less risk averse and more adventuresome than the average person in their country of origin
International migration therefore provides a natural process that naturally selects adventuresome and enterprising people.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Immigration, the labor force and F.D.I.

A

Immigrants also affect the levels of population and therefore the size of the economies’ labor force.
Immigration also leads to more foreign direct investment and this will increase the country’s level of productivity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Growth effects of immigration in the source country

A

R&D models suggest that source countries grow less rapidly because its stock of innovative people decreases (brain drain), immigrants take ideas and knowledge with them, and the size of the economy is reduced leading to diseconomies of scale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Growth declines can be avoided if:

A

Immigrants eventually return to their home country
Immigrant remittances enable greater levels of investment in the source country
Moreover, prospects of higher overseas earnings may increase the home country human capital formation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Growth effects of immigration in the source country

A

The evidence on how remittances affect long-run growth is mixed.
Most studies show that remittances are used mostly for consumption, not investment.
Another impact of remittances is the multiplier effect, although it may nor necessarily lead to economic growth.
Remittances may also raise the education (human capital) of the remaining family members, which increases economic growth.
In conclusion, remittances by themselves are not likely to play a decisive role in economic development unless there are investment opportunities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Conclusions

A

Immigration is likely to stimulate technological progress in destination countries and therefore enhance economic growth
Immigrants bring new ideas, increase the supply of productive and innovative resources and are more likely to be entrepreneurial and risk-taking.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly