Growth

Question 1

What are Proximate determinants to growth?

Answer 1

Factor accumulation:
- Physical capital
- Population/labor
- Human capital

Natural resource use

Productivity growth:
- Technological progress

Question 2

What are the fundamental determinants to growth?

Answer 2

Institutions
Government
Geography
Openness
Inequality
History
Culture

Question 3

Harrold-Domar model

Answer 3

Y: Kapital
X: Labour
45degree line with 90degree Quantity-curves crossing

Question 4

Five strong assumptions to Harrold-Domar model

Answer 4

1. No substitution possibilities among inputs
2. Constant returns to scale
   1+2→ 3. Leontief fixed-proportions technology
3. Closed economy: I=sY
4. Capital is the limiting factor in growth/labor is in unlimited supply

Question 5

Solow model

Answer 5

If poor and rich countries had the same steady state, poor countries would grow faster.

Technonolgy determines growth.

Diminishing returns, substitution possibilities
Constant returns to scale to all factors of production together

Steady state: no per capita/worker growth.

Question 6

Conditional convergence growth

Answer 6

Solow model: The growth rate is faster the further from the steady state the country is. As the country approaches the steady state the growth rate approaches zero

If poor and rich countries had the same steady state, poor countries would grow faster.

Question 7

Name a prediction of endogenous growth

Answer 7

Skilled labor flows will go from poor to rich countries

Question 8

Name a prediction of endogenous growth

Answer 8

Skilled labor flows will go from poor to rich countries

Question 9

Example of spillovers

Answer 9

1. Information spillovers: productivity in one firm depends on what other firms are doing → encourage geographic clustering
2. Access to markets/specialized labor
3. Common infrastructure

Question 10

Dual economy models

Answer 10

Describes structural transformation and role of agriculture in growth

Structural transformation: economies grow → share of agriculture in GDP and labor decrease → productivity in agriculture increase → structural composition changes

Question 11

Dual economy models: Lewis classical model

Answer 11

Agriculture: passive role as a source of labor and food.

The wage in agriculture corresponds to the subsistence needs. agricultural output divided by the full population.

→ Investment in industry will increase MPL in industry and attract laborers from agriculture

→ Until Lewis turning point is reached: no effect in agricultural output, wage, or price of food.
→ Benefits of growth in industry accrue fully to capital owners

• Empirically MPL in agriculture is often low (but not zero) in developing countries.

Question 12

Dual economy models: The Jorgenson neoclassical model

Answer 12

No surplus labor in agriculture and the wage equal MPL

Workers in agriculture decreases→ production falls, food prices increase → nominal wages will have to increase → there is a halt to industrialization.

Need for technological change in agriculture! (the green revolution)

Industrialization follows productivity gains in agriculture.

Question 13

Disguised unemployment models

Answer 13

Ex. China: Surplus labor from agriculture to industry → Productivity growth in agriculture that kept prices low

MPL in agriculture is above 0, but below wages

Moving labor out of agriculture → reduces agricultural output→ increases prices and nominal wages.

Solution for growth: technological progress in agriculture.
→ Price of food and nominal wage can fall.
→ attract investment in industry.

Question 14

Pro-poor growth

Answer 14

Any growth that also benefits the poor is pro-poor in the sense that it reduces absolute poverty.

On average economic growth has benefitted poor and rich equally within countries