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Understanding Economic Growth: The Role of Ownership and Technological Progress, Slides of Banking and Finance

An in-depth analysis of economic growth theory, focusing on the debate between exogenous and endogenous growth. The authors discuss the contributions of harrod and domar, solow, and the neoclassical and endogenous growth theories. The document also explores the impact of public vs. Private ownership on growth and the sources of endogenous growth, including saving, efficiency, and depreciation.

Typology: Slides

2012/2013

Uploaded on 07/29/2013

sathyanna
sathyanna 🇮🇳

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Download Understanding Economic Growth: The Role of Ownership and Technological Progress and more Slides Banking and Finance in PDF only on Docsity!

Ownership

and Growth

Presentation in Two Parts

1. General discussion of economic

growth and the analytical

background of the paper

2. Specific discussion of the topic at

hand: public vs. private

ownership and the difference it

makes for growth

 Joint work with Tryggvi Thor

Herbertsson and Gylfi Zoega

Economic Growth: The Short Run vs. the Long Run

Time

National economic output

Actual output

Potential output

Business cycles in the short run

Economic growth in the long run

Downswing

Upswing

Thus, increased saving may reduce actual output, while increasing potential output.

Economic Growth: The Short Run vs. the Long Run

To analyze the movements of actual

output from year to year, viz., in the

short run

Need short-run macroeconomic theory

Keynesian or neoclassical

To analyze the path of potential output

over long periods

Need modern theory of economic growth

Neoclassical or endogenous

Why not?

Take another look at

g = sE - δ

When s increases, E begins to decrease,

according to Solow, and continues to do

so until g is restored to its intial,

exogenously determined value.

This occurs essentially because an

increase in s increases K, so that E =

Y/K goes down.

Economic Growth:

The Solow Model

But this approach distracted attention

from two key questions:

1. How long is the long run?

  • Is it possible that the long run is so long as to be almost irrelevant from the point of view of economic policy?

2. What determines output per head?

  • Is is possible that the level of output per head is endogenous in the long run even if its rate of growth is not?

Economic Growth:

The Solow Model

a y Ak

1

k s

n q y

    • δ =

a

a

a n q

s y A

 

  

=

1 1

δ

0 dA

dy

The parameter

A represents

technology and

efficiency.

Traces the rate of growth of output

per capita to a single source:

Technological progress

Hence, economic growth in the long run is immune to economic policy, good or bad

“To change the rate of growth of real output per head you have to change the rate of technical progress.”

The Neoclassical Theory of

Exogenous Economic Growth

A Simple Model of

Endogenous Growth

Four building blocks:

 S = I

Saving equals investment in equilibrium.

 S = sY

Saving is proportional to income.

 I = ∆ K + δ K

Investment involves addition to capital stock.

 Y = EK

Output depends on quality and quantity of capital.

Endogenous Growth in the

Harrod-Domar Model

This version of the endogenous

growth model is simply a

restatement of the Harrod-

Domar model

where growth depends on:

A. the saving rate

B. the capital/output ratio

C. the depreciation rate

Specific Model

a a Y AL K

1

( )

a A = E K / L

Y = EK

g = sE − δ

q = gn

Now, assume learning by doing :

It follows that

and that

Two equations in two unknowns

A Picture of the Model

g

q

n

sE - δ

A

Saving

Fits real world experience quite well.

No coincidence that, in East Asia, saving rates of 30- 40% of GDP went along with rapid economic growth. No coincidence either that many African economies with saving rates around 10% of GDP have been stagnant. OECD countries: saving rates of about 20% of GDP

Important implication for economic policy:

Economic stability with low inflation and positive real interest rates encourages saving, and thus is good for growth.

Sources of Endogenous Growth

Sources of Endogenous

Growth

East Asia

OECD

Africa

Income per capita