Lecture 1: Introduction to Modern Economic Growth

Question 1

What is Economic History?

Answer 1

Economic history as the meeting point of theory and empirics, aiming at understanding economic activity, but interested in all forms of social human activity, without limits of space and time.

Question 2

What is Modern Economic Growth?

Answer 2

A country’s economic growth may be defined as a long-term rise in the capacity to supply increasingly diverse economic goods to its population.

That is, MEG is a sustained increase in income/output per capita and means:
– More of the same goods available
– New goods available.

Question 3

Feature #1:

Very Recent Phenomenon

Answer 3

Stagnation and income at subsistence not sure
before 1800 (or 1500), but extremely slow growth (if any).

Human economies experienced several radical transformations (Upper Palaeolithic explosion, the Neolithic revolution), but no steady growth

Question 4

Feature #2:

Divergence

Answer 4

Differences are getting bigger, not smaller

Difference in income per capita between UK and India:
– in 1500, only 30 %. – in 2010, over 700%.

Difference between poorest and richest country
– 1960: 30 to 1
– 1990: 70 to 1

• The rise of China may be changing this

Question 5

Feature #3:

Persistence

Answer 5

Most countries that are rich today, were already rich in 1800 or even 1500 (Western Europe).

Japan, first, then East Asia and now China and India are the exceptions.

Question 6

Feature #4:

Conditional Convergence

Answer 6

MEG started in NW Europe and eventually
spread to some countriesAll rich now

Some poor countries converge towards rich ones, provided something else happens

Question 7

What is a proximate cause?

Answer 7

A proximate cause is an event which is closest to, or immediately responsible for causing, some observed result

Why did the ship sink?
Because it was holed beneath the waterline, water entered the hull and the ship became denser than the water which supported it, so it could not stay afloat.

Question 8

What is an ultimate cause (or distal cause)?

Answer 8

ultimate cause (or distal cause) which is usually thought of as the “real” reason something occurred.

Why did the ship sink?
Because the ship hit a rock which tore open the hole in the ship’s hull.

Question 9

Proximate causes in economic growth?

Answer 9

• What are we measuring?
– Economic growth: the change of the total output produced by an economy in a given time interval

• Why does this happen?
– Remind the production function! Either you
• use more inputs or
• use them more efficiently (i.e. Technological progress)

Question 10

Ultimate causes in economic growth?

Answer 10

– Why did it start in the UK around 1800?
– Why did it spread to some countries and not to others?
 Why are some countries so rich and others so poor?

Question 11

Draw the Production factors, technology, markets scheme

Answer 11

Inputs:
LABOR (Demographic behavior/Education)
LAND CAPITAL
Saving
--> BLACK BOX (+ available technologies) 
--> OUTPUT

Question 12

What causes Technological Progress?

Answer 12

• A) First models: “It’s exogenous” (i.e., we don’t really know).
• B) “Endogenous Growth Theories”: it is another production factor (Human K, Knowledge), with no diminishing returns. But, then, why did growth start so late in history?
• C) “Unified Growth Theories”: similar to EGT, but incorporates demography in order to explain the delay in HK accumulation, secular stagnation, the demographic transition, and sudden growth

Question 13

Ultimate causes of growth

Answer 13

• Non-human made (“Nature”)
– Direct effect: Physical geography, Position, Climate, Natural Resources (Sachs, “resource course”)
– Indirecteffect(“Sophisticatedgeographicalhypothesis”):Bio-ecology determines different starting points (with cumulative effects) and/or has an impact on man- made determinants – Jared Diamond

• Human made (“Institutions” latu senso)
– “Culture”: “internal” determinants of behaviour, shaping individuals’ preferences
• Culture, religion, values – Landes (Judeo-Christian anthropocentrism), Weber (Protestantism), Mokyr (Scientific Revolution & Enlightenment)
– “Institutions”: “external” determinants of behaviour, shaping incentives faced by individuals
• Legal system, non-written rules, distribution of property rights (North & Thomas, Acemoglu)

Question 14

Proximate causes of growth

Answer 14

Hence both TFP and K accumulation are the main proximate causes of growth.
(“Total Factor Productivity”, TFP)