Lecture 11 - Luck

Question 1

What is the most important engine of growth in an economy?

Answer 1

The most important engine of growth in an economy is known as total factor productivity which is also called technological progress

Question 2

How does total factor productivity drive sustained economic growth?

Answer 2

Total factor productivity allows the transition from a traditional to a modern economy hence it allows sustained economic growth

Question 3

Explain England’s economic growth during the industrial revolution and how it achieved it

Answer 3

• England experienced sustained economic growth from the beginning of the 18th century to the end of the 19th century
• During this period England accumulated a lot of capital

Question 4

State some examples of the technological progress made by England during the industrial revolution

Answer 4

• The flying shuttle was invented and it allowed spinning many threads at the same time
• The spinning jenny was a machine that could spin up to 120 threads at the same time
• The power loom was invented and was a fully automated machine using steam power
• Robert’s loom was invented an it used iron instead of wood allowing constant yarn tension to be maintained

Question 5

What is the relationship between total factor productivity and the other factors of production?

Answer 5

Total factor productivity increases the productivity of all factors of production and it increases incentives to accumulate both capital and labour

Question 6

What does technological progress lead to?

Answer 6

Technological progress leads to capital accumulation

Question 7

What is the relationship between economic growth and capital accumulation?

Answer 7

Economic growth and capital accumulation are correlated

Question 8

What is needed in an economy for people to be able to generate technological progress and accumulate physical and human capital?

Answer 8

In order for people to generate technological progress and accumulate physical and human capital there must be some fundamental causes of growth in the economy

Question 9

When can things go wrong in an economy?

Answer 9

Things can go wrong in an economy if there are lack of the pre-conditions known as the fundamental causes of growth

Question 10

Give two examples of bad luck in different economies

Answer 10

• The population declined in Louisiana after Hurricane Katrina in 2005
• Coffee production in Colombia declined with the great recession

Question 11

What determines whether people are able to invest in physical and human capital or not

Answer 11

Government policy matters to determine whether people are able to invest in physical and human capital and adopt foreign technology or not

Question 12

What do effective government policies require?

Answer 12

• Effective government policies require competent leaders
• Not everyone makes a good leader
• Therefore the argument is that luck determines the quality of leadership

Question 13

Give some evidence to suggest that countries struggle after the death of a leader

Answer 13

Given by the research of Jones and Olken (2005):
- We see structural breaks after the death of certain leaders in countries such as China, Mozambique, Guinea and Iran
- These deaths happened by chance

Question 14

Give an example to suggest that the death of a leader does not always mean economic downturn is to come

Answer 14

• In France, Georges Pompidou was president from 1969 to 1974
• He died in office
• There was no long term economic disruption, the French GDP quickly recovered after 1974

Question 15

Give some examples to show that leaders who die in power don’t tend do be democratic ones

Answer 15

• Francois Duvalier ruled Haiti 1957-1971 when he died
• He led one of the most repressive regimes of the 2nd half of the 20th century with and estimated 60000 people killed
• Fransico Franco was a Spanish military general who overthrew the Spanish second republic
• He prompted one of the largest exilement movements in Europe in the 20th century
• He killed over 160000 in wars