History Of Economic Growth

Question 1

Prod function

Answer 1

Y=AK to the alpha L to the 1-alpha

Question 2

2 sources of growth

Answer 2

Proximate
Deep determinants

Question 3

Proximate sources of growth (3)

Answer 3

L and K accumulation
Technological change

Question 4

Deep determinants of growth (2)

Answer 4

Institutions
Geography

Question 5

5 theories of growth
3 measures of growth
3 ways to calc GDP
3 price series and its use(to deflate GDP to find real)
Problems w indexes
Why use PPP’s-ER don’t capture real relative prices
2 types of PPP
Growth accounting
Issues w growth accounting
Institutions
Type of institutions (2)
Formal institutions (5)
Informal institution examples
Why institutions important for growth
Growth hindrances
4 approaches to institutions
Efficiency approach-strong vs weak

Question 6

5 theories of growth

Answer 6

Smithian
Solovian
Boserupian
Lewisonian
Schumpeterian

Question 7

3 Tools needed to measure growth

Answer 7

GDP
PPP
Growth accounting

Question 8

3 approaches to calculate GDP

Answer 8

Expenditure (Y=C+I+G+NX)
Income (Y=wL+rK+rents)
Production

Question 9

3 price series/index’ and its purpose

Answer 9

Purpose to deflate nominal GDP to find real

Paasche index
Laspeyres index
Fisher ideal index

Question 10

Problems with index numbers (5)

Answer 10

Choice of index
Choice of base year
Ignores changes in quality (focuses on price change)
Real value of options ignored
Representative baskets of goods?

E.g although nominal wages are deflated by CPI index to show purchasing power, basket of goods may vary for different wage levels (bottom 10% vs rich 10%)

Question 11

Why use PPP

Answer 11

Exchange rates can’t find changes in real relative prices

Question 12

2 types of PPP

Answer 12

Bilateral and multilateral

Question 13

Bilateral notes and 1 negative.

Answer 13

Used in many 2 country studies where countries are similar.

Index does not satisfy transitivity.

Question 14

Multilateral PPP

Answer 14

Used in many cross country studies.

DOES SATISFY TRANSITIVITY UNLIKE BILATERAL

Question 15

Cobb Douglas function

Answer 15

Y=AK to the alpha x L to the 1-alpha

(A IS A CONSTANT)

Question 16

Growth accounting for CD function

Answer 16

LN both sides to lnY=lnA+alphalnK + (1-alpha)lnL

Then differentiate.

(A is a constant)

Question 17

Potential Issues with growth accounting (differentiation) to measure growth (2)

Answer 17

Choosing the production function!

Exponents may need constraining. E.g national income shares may change rapidly

Question 18

Criticisms of growth accounting (3)

Answer 18

Shows rate of growth but not the actual level.

Results can be sensitive to period chosen

Doesn’t capture causes of growth.
E.g if technology shock (A changes), so output increases. K accumulates which increases output. But growth accounting only captures K accumulation.

Question 19

Types of institutions (2)

Answer 19

Formal
Informal

Question 20

Formal institutions (5)

Answer 20

Legal system (civil vs common law)
Political system (parliament vs presidential)
Economic system (capitalist vs socialist)
Education system
Healthcare (private vs public)

Question 21

Why are institutions important for growth (3)

Answer 21

The proximate sources of growth (K,L,A) are influenced by them (deep determinants)

They impact transaction and transformation costs

They explain performance of different sectors, and different countries

Question 22

Neoclassical assumption on institutions

Answer 22

They take institutions as given.

Question 23

Issues in institutions

Answer 23

Property rights
Intellectual property rights-tech change, incentives to invest
Factor markets-efficiency in KL markets
Product markets-efficiency in goods markets
Government-constraints on executive and taxes
Commerce-ability to trade

Question 24

Four approaches to institutions

Answer 24

Efficiency
Accidental
Cultural
Conflict

Question 25

Efficiency approach, 2 types and example case

Answer 25

People chose least costly way of transacting.

Strong (Darwinism)-inefficient institutions will die out
Weak-inefficient institutions can persist but the best should dominate

Greif-fundamental problem of exchange: without institutions, incomplete information. Contracts can overcome this, specify terms and thus solve the problem exchange.

Question 26

How to solve efficiency approach

Answer 26

Fulfil contracts by punishment mechanisms

Question 27

Accidental approach

Answer 27

Institutions not selected.

Question 28

Example of accidental approach

Answer 28

Colonial origins of comparative development (Acemolgu)

Good institutions were set up where lower settler mortality rate exists. (US/Canada/AUS)

Higher mortality rate=extractive institutions set up. (Extract growth benefits quickly) e.g Africa.

Question 29

Cultural approach and 2 versions

Answer 29

Societies/groups holds beliefs that determine institutional rules

Exogenous-beliefs come from outside institutions
Endogenous-beliefs come from institutions

Question 30

Cultural approach example

Answer 30

Culture of Individualism in America- reflected in legal system through emphasis of protection individual rights e.g fair trial.

Question 31

Conflict approach

Answer 31

Individuals battle over institutional structure to capture their beliefs.

May not be efficient, as seen in example

Question 32

Conflict approach examples (2)

Answer 32

Ogilvie
Interest groups benefitted by guilds. Guilds were not efficient, only offered benefits to some.

Unions for labour attempt to promote interests of workers to powerful employers e.g through strikes.