New directions in growth theory Flashcards
What are the new directions in growth theory?
- Human capital in endogenous growth
- – micro/macro paradox
- Adjustments to the neoclassical model
- – Melitz: Heterogenous firms
- – Jones: Intermediate goods
- – Jones: Skilled and unskilled labour aren’t substitutes
- Economic geography
- Shrinking
What does the neoclassical vs endogenous growth theory imply about investment in education?
Neoclassical - basic education important for a broad labour base
Endogenous - of first order importance, would encourage a higher rate of tertiary education due to spillovers and knowledge transfers
What is the micro evidence on whether human capital has led to growth?
- usually uses the Mincer equation
- tons of evidence that education increases standard of living
- 1 additional year of schooling > 10% wage increase
What is the macro evidence on whether human capital increases have led to growth?
Early macro evidence
- Barro; Sala-i-Martin suggested that education > growth
Modern macro evidence
- Bils and Klenow - early papers plagued with issues. Only found relationship due to:
- – higher enrollment > quicker labour supply growth
- – committed vars: eg. property rights > enrollment
- – reverse causality: responding to anticipation of future income growth
- Pritchett - actually finds negative externalities from education, due to:
- – demand for education from rent-seeking actors
- – low quality of education such that it doesn’t improve prod
What is the evidence on cognitive skills and growth?
Hanushek and Woesmann - cognitive skills matter way more than years of schooling
Kristof - lack of micronutrients > lower cognitive ability
Attina and Trasande - exposure to lead > -1.2% global GDP
Xin - air pollution > lower cognitive ability, early dementia
What are the implications of introducing heterogenous firms to the neoclassical model?
Melitz - efficiency variation in firms, may lead to misallocation
Chari et al - level of distortion (from political connections, subsidies etc) can be measured by the marginal revenue product of firms. So potentially to improve production by reallocating to firms with higher marginal revenue products
Klenow and Hsieh - reallocation to the level of the United States > manufacturing gains of 25-40% in China (although this may be due to data cleaning issues
Nishida et al - reallocation responsible for over half productive gains in Indian manufacturing. Implies that reallocation can be important even if there’s less allocation than previously expected
What are the implications of introducing intermediate goods to the neoclassical model?
Jones
- provide links across sectors
- low substitutability across intermediate goods (eg. road/electricity)
- productivity multiplier
Can now explain larger (50:1) income differences
What are the implications of noting that skilled and unskilled labour aren’t complements, for the neoclassical model?
Jones
- human capital variation explains most of the income differences, because:
- marginal prod of unskilled labour increases with share of skilled labour
Caselli and Ciccone - above assumes that wages are only a function of skills; when accounting for role of technology, institutions etc in determining wages, the role of human capital is way smaller
What are the basic forces of economic geography?
Agglomeration
- economies of scale
- – labour concentration
- – spillovers
- – better/more intermediate goods
Dispersion
- congestion and associated externalities
- decreasing supply of immobile factors
- reaching geographically dispersed market
- labour dispersion
When do firms start dispersing and which firms disperse?
Puga and Venables
- when wages in manufacturing are too high in rich countries
- firms that have the following characteristics are more likely to disperse:
- – reliant on immobile supply
- – less reliant on intermediate goods
- – less reliant on linkages to other firms
- these firms will move to a particular place, whereupon this place with experience agglomeration forces
- so dispersion isn’t an random/equal process. No convergence, just select countries/regions
What’s the impact of transport costs on economic geography and growth?
- transport costs (costs of distance) impact the price of immobile factors (land, sometimes labour)
- even seemingly minor transport costs can have large impact on wages and incomes
- impact of distance on trade costs is 4-5x greater in Ethiopia/Nigeria than the US, and most of the surplus from the transport costs extracted by intermediaries, so remote consumers only see a fraction of the gains from opening up trade (Atkin and Donaldson)
Explain the argument for focusing on shrinking episodes, rather than growth episodes
Broadberry and Wallis
- growing and shrinking rates are high and variable
- when growing rates are high/low, shrinking rates are high/low
- economic performance is largely due to reduction in the rate and frequency of shrinking episodes
Poorer countries have not grown less rapidly, while they’ve been growing. BUT, they have shrunk with more intensity and frequency.
- this is attributed to improvements within sectors, not structural change
- they highlight the importance of institutional change in explaining within-sector improvements
