Topic 2: Globalisation and Growth

Question 1

b) falling trade costs promote globalisation throguh: (3)

Answer 1

> growth in quantity of factor inputs through migration and foreign direct investment (FDI)
growth in quality of factor inputs through migration and FDI
changes to the way in which factor inputs are combined, through knowledge spillovers and acquisition of new technology

Question 2

b) growth and income convergence predicitions

Answer 2

> poor countries with low K/L should grow faster than rich countries with high K/L leads to per capita income convergence
in theory, if market-friendly policies introduced, capital will flow from rich to poor countries and convergence ensues

Question 3

b) knowledge stocks

Answer 3

Studies link ‘knowledge stocks’ for industrialised countries (ICs) to growth in developing countries (LDCs) :

Question 4

b) has convergence happened?

Answer 4

> Lucas paradox: no, capital hasn’t flowed from rich to poor
but convergence in HDI has: China and India from roughly 0.25 to 0.7 and 0.6
even least advantaged countries have mortality rates similar to advanced countries in 1870: world coefficient 0.114

Question 5

b) why institutions important

Answer 5

> reward for successful enterprise
containment of moral hazard
enable deep capital markets required for advanced economy

Question 6

b) why distance still important

Answer 6

> trade flows
> technology flows
> financial flows
> capital momvments 
reduced the greater the distance

Question 7

b) endogenous growth theory (4)

Answer 7

1) Stimulated by apparent absence of income convergence
2) Does not depend on diminishing marginal productivity of capital
3) Consistent with continual growth rather than steady state growth
4) Positive externalities from human capital accumulation can lead to increased investment having a permanent effect on the growth rate

Question 8

c) Sebastian Edwards study usefulness

Answer 8

• It covers a period of diverse experience and significant liberalisation (1960-1990)
• Has a large sample of countries (93)
• experiments with a number of different measures of openness (9)

Question 9

c) Edwards key results

Answer 9

> estimated coefficient on openness indices consistently positive and significant
results are robust across openness measures and econometric specification
concludes that more outward oriented economies experience faster productivity growth than inward oriented economies

Question 10

c) Dollar and Kraay: real income growth per person

Answer 10

1990s: 5% for globalisers, 1.1 for non-globalisers

Question 11

d) arguments in favour of innovation and technology stopping driving new growth

Answer 11

• Data show a marked slowdown in productivity growth in some developed countries
• Last 200 years have been just ‘one big wave’ of dramatic change (Gordon)
• “You can see the computer age everywhere but in the productivity statistics” (Solow)
• Increasing ‘burden of knowledge’ means fewer really good ideas

Question 12

d) arguments against innovation and technology stopping dricing new growth

Answer 12

• Data is backward looking, not forward looking
• Evidence is very US-centric
• Rapid innovation currently eg in ICT, additive manufacturing, plant biotechnology, genomic revolution, big data
• Lags in adoption and diffusion can be long (eg steam engine, containerisation) and ICT innovation is still in its infancy
• Innovation has cumulative effects “second half of the chessboard”

Question 13

c) Sebastian Edwards study usefulness

Answer 13

• Has a large sample size
• Uses a broad number of measures of openess, not just trade (eg avg import tariff on manufacturing)
• covers period of diverse experience and significant liberalisation (1960-90)