growth Flashcards
economic development
improvements in living standards and in the quality of life
economic growth
measures only growth in economic production
factors of production
labor and capital
value added
the value of output minus the value of inputs used in production
factor abundance
the relative availability of the different factors of production
production function
a mathematical expression of the joint effect of the factors of production on output
cobb douglas production function
Y = AtKtαLt(1-α)
constant returns to scale
if we multiply each factor by the same number, output is also multiplied by that number
factor productivity
the contribution of each factor of production to output
average labor productivity
national output divided by total employment in the economy. how much on average one worker contributes to national output in a given year
capital intensity
Kt/Lt, how much capital there is per worker
marginal productivity
the output increase caused by an additional unit of labor (or capital) in the economy
diminishing marginal productivity
the more labor (or capital) added to the economy, the smaller the additional output that will be generated
factor shares
the share of national income used as payment for the share of capital (or labor) in production
growth accounting
estimates what percentage of an economy’s growth rate we can explain using the growth rate of the labor force, the growth rate of the capital stock, and residual factors
growth rate of total factor productivity
parameter a
total factor productivity
the part of output that labor and capital cannot explain. institutional reforms and technical progress
human capital
knowledge embodied in people
income convergence
prediction of solow model: poor countries should grow faster than rich countries because they have a higher marginal product of capital. eventually, the income gap should tighten and countries should all converge on the same steady state.
endogenous growth theory
suggests that growth is generated by endogenous technical change resulting from entrepreneurial innovation
knowledge
not necessarily embodied in people, in principle can grow boundlessly and can accumulate indefinetly
non-rival good
a good that can still be consumed by the seller even after it is sold
excludable good
a seller can exclude others from its consumption
monopoly rents
extra profits derived from monopoly status
extractive or predatory institutions
intended to exploit the colonized country’s resources
assumptions of solow growth model production function
- production function exhibits constant returns to scale
- total savings are a constant share s of income: S = sY
- technological progress is exogenous
simplifying assumptions of solow growth model production function
- fiscal balance (no government expenditure/revenus)
- closed economy
- constant rates of population growth, n
capital accumulation equation solow
Kt+1 = sYt + (1-δ)Kt
solow growth model: equilibirum equation in per worker terms
(1+n)kt+1 = sAk𝛼t + (1-𝛿)kt
capital accumulation equation solow meaning in words
the capital in the next period essentially equals to the value of capital we have saved up to time t subtracting the depreciated value and adding the amount of capital we are going to save in the current period
steady state per-capita capital equation solow
k* = (sA /(n+δ) ^ 1 / (1-α)
steady state per-capita income equation solow
y* = A ^ 1 / (1-α) ( s / (n+δ)) ^ α / 1- α
solow: what happens to steady state equilibirum and growth rate when savings rate increases
higher output per worker and higher capital per worker
solow: what happens to steady state equilibirum and growth rate with higher population growth rates
High population growth rates lead to lower steady state levels of k and y
solow: what happens to steady state equilibirum and growth rate when technology progresses
higher output per worker and higher capital per worker
growth accounting equation
gy = a + αgK + (1-α)gL
