L4: Development and growth accounting

Question 1

The setting

Answer 1

Generally a rise GDP per capita across countries, from 1820 – today
- focus is 1960 – today

Somewhat rational convergence  implying unconditional convergence

Average and median growth rates are declining
- Growth rate is on average lower in the last 10 years, than the 20 before
- We also see a change in which countries that are growing

Question 2

Patel et al (2021) - A new growth pattern

Answer 2

It is not a question of ‘if’ countries will reach each other, but rather a question of how fast.

Patel et al challenges the long-held notion of unconditional convergence, demonstrating that since the mid-1990s, poorer countries have been catching up with richer ones. This convergence is driven by accelerating growth in developing countries, not necessarily a slowdown in advanced economies. Middle-income countries, in particular, have shown strong growth, negating the concept of a “middle-income” trap.

The paper concludes that the era of unconditional divergence is over, replaced by a new trend of convergence where developing countries are catching up with developed ones. This trend is significant but slow, and its continuation depends on various global factors. The authors call for a revised understanding of global economic growth patterns, emphasizing the remarkable shift that has occurred since the mid-1990s

Question 3

Growth accounting

Answer 3

Considers what drove growth in a country - factor accumulation or productivity growth?
- see notes for equations

Theory by Hsieh & Klenow (2010)

Question 4

Development accounting

Answer 4

Compares productivity across countries and further investigates to what extent the variation in output pr worker among countries is explained by differences in productivity
- see notes for equations

Theory by Hsieh & Klenow (2010)

Question 5

Hsieh and Klenow (2010)

Answer 5

The paper investigates the determinants of income differences across countries, focusing on physical capital, human capital, and Total Factor Productivity (TFP). The authors highlight that while significant progress has been made in understanding the proximate causes of these differences, less is known about the underlying reasons for the variation in these factors. They emphasize the role of TFP, not only in directly influencing output but also indirectly through its impact on the accumulation of physical and human capital.

Development Accounting:
The paper explores how physical capital, human capital, and TFP contribute to income differences across countries.
Physical capital explains about 20% of income differences.
Human capital accounts for 10-30% of income differences.
TFP is the largest factor, explaining 50-70% of income differences.

The paper emphasizes the need for a deeper understanding of why these factors (physical capital, human capital, and TFP) vary across countries. It suggests that improving TFP could have a significant impact on economic output by enhancing physical and human capital accumulation. The authors call for further research into the production function of human capital and the forces behind resource misallocation to better understand the determinants of income differences.