Economic Growth over the Very Long Run, Study notes of Macroeconomics

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Economic Growth over

the Very Long Run

Chad Jones

Stanford GSB

What is graphed here?

0

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1400

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5

45 40 35 30 25 20 15 10

YEAR

INDEX (1.0 IN INITIAL YEAR)

Growth over the Very Long Run – p. 2

Key Ingredients of Main Models

Malthusian Land:

Y

F

A, K, L, T

◦

Fixed supply of land

◦

Decreasing returns to scale holding technology fixed.

Demographic transition

◦

Fertility at first rises with income

◦

But eventually declines

Some kind of growth process

◦

Lee / Kremer / Jones: Ideas

◦

Lucas / Galor: Human capital

◦

Hansen-Prescott: Solow exogenous tech change

Evidence for Malthusian Channel? The Black Plague

Let

a

log

A

and

log

L

Double exponential growth — growth rates growexponentially!

People produce ideas and ideas produce people, with IRS

Kremer (1993): Million B.C. to Present

Builds on Lee (1988) and provides empirical support

Key Condition

Suppose

Y

A

σ

K

α

T

β

L

1

−

α

−

β

and

A

L

λ

A

φ

A crucial condition for getting the “hockey stick” is

Why?

Key Ingredient: The Demographic Transition

Oded Galor’s Unified Growth Theory

Starting with Galor and Weil (2000). See also Lucas (1998).

Nutshell version:

◦

Lee-Kremer like mechanism initially lifts incomes

◦

Induces human capital accumulation, driving growth

◦

Demographic transition via quality-quantity tradeoff

Extensive follow up research

◦

Natural selection

◦

Role of geography and timing of the neolithic revolution Guns, Germs, and Steel

◦

Biocultural origins of human capital formation

Hansen and Prescott (2002): Malthus to Solow

Two production technologies available at all times

◦

Malthus

Y

m

A

m

K

φ

m

N

μ

m

L

1

−

φ

−

μ

◦

Solow

Y

s

A

s

K

θ

s

N

1

−

θ

s

◦

Exogenous growth in both

A

m

and

A

s

◦

Mechanical demographic transition

Can use either technology to make homogenenous output:

Key assumption:

A

s

initially low, but grows faster than

A

m

Growth over the Very Long Run – p. 14

Main Results of Hansen and Prescott

Directions for further research?

How to endogenize fertility?

◦

Cordoba and Ripoll, “The Elasticity of IntergenerationalSubstitution, Parental Altruism, and Fertility Choice”2014 working paper.

◦

Quality-quantity tradeoff surely important here.

Why U.K. instead of China?

Role of institutions