long-run economic growth Flashcards
industrial revolution
mechanical power replacing human or animal
glorious revolution -> employers willing to make investments necessary
effects of different growth rates on living standards
small differences in economic growth result in big long-term differences in living standards even after 50 years
why do growth rates matter
fail to raise living standards
poor growth results in previously rich countries lagging behind with higher rares of poverty, life expectancy and high infant mortality
is income all that matters
spill over from world growth profits other poorer countries
economic growth model
explains growth rates in real gdp per capita in the long run (labour productivity)
main factors in tech change
better machinery and equipment
increases in human capital
better means of organizing and managing production
pre-worker production function
relationship between real gdp per hour worked and capital per hour worked, holding the level of tech constant
increasing output per hour worked
increasing capital
if capital already high, tech change is more effective
economic failure of soviet union
held back tech change and slowing growth rates for output
new growth theory
model of long-run economic growth that emphasizes that tech change is influenced by economic incentives and so is determined by the working of the market system
knowledge capital
nonrival and nonexcludable
public good
increasing returns at the economic level
government policy in knowledge capital
protecting intellectual property (patents and copyrights)
subsidizing R&D (performed directly and indirectly)
subsidizing education (technical training)
creative destruction
new innovations destroy old ones
entrepreneurs in economic growth
the profits of entrepreneurs provide the incentive for bringing together factors of production in new ways
convergence
economic growth model predicts that poor countries will grow faster than rich countries
catch up
the level of gdp per capita in poor countries will grow faster than in rich countries
negative relationship between growth in gdp per capita and initial level of gdp per capita
happening?
some catching up (previously poorer countries catching up to previously richer countries)
mostly not
high income countries have stopped catching up to the US
US labour markets are relatively flexible
US financial system is relatively efficient and the high volume of trading ensures high liquidity
lack of growth in many low-income countries
failure to enforce the rule of law
wars and revolution
poor public education and health
low rates of saving and investment
rule of law
ability to enforce the laws of the country
private property and enforcing contracts
foreign investment (2)
foreign direct investment: factory in another country
foreign portfolio investment: stocks and bonds issued in another country
globalization
process of countries becoming more open to foreign trade and investment
higher growth rates
pro-growth policies
enhancing property rights and the rule of law
improving health and education
policies to promote technological change
policies that promote saving and investment
