Академический Документы
Профессиональный Документы
Культура Документы
Causes of Growth
Before: Looked at special cases and tried to
qualitatively understand causes of growth
Robert Solow
Macroeconomist
Professor at MIT
Nobel Prize (1987)
Important Contributions:
Developed a macroeconomic
model that allows for a
decomposition of GDP into
factors of production (capital,
labor, productivity)
Showed that capital
accumulation is relatively
unimportant for growth
Contrasts with the thinking of
the majority of economists
before (Smith, Marx, etc.)
Macroeconomic Models
Models: A theoretical construct designed to represent a
complex system.
Economists use these models to predict the effects of
policy, such as:
If taxes are raised, what will happen to
unemployment?
Who will gain and lose from a free trade
agreement?
What happens to unemployment if the Federal
Reserve increases the supply of money in the
economy?
What policies can increase growth in developing
countries?
Households:
Firms:
Capital Accumulation:
GDP:
I=sY
Y = A K0.3
K = I + (1- )K
Y=C+I
Rearranging terms:
I = s Y = s A K0.3
K = I + (1- )K = s A K0.3 + (1- )K
K= K
K= K
K= K
K0
K1
K= K
K0
K1
K= K
K0
K1
K1
K= K
K0
K1
K= K
K0
K1
K1
K= K
K0
K1
K2
K1
K= K
K0
K1
K2
K1
K= K
K0
K1
K2 K3
K4
K3
K2
K1
K= K
K0
K1
K2 K3
K = s A K0.3 + (1- )K
K1
K= K
K0
K1
K2 . K10
K = s A K0.3 + (1- )K
The point where the two
lines meet is the steady
state level of capital. Once
the economy is at this level,
the capital level does not
change.
K= K
K*
K = s A K0.3 + (1- )K
Suppose the economy is in
a steady state with savings
rate s.
K= K
K*
K = s A K0.3 + (1- )K
K*
Then the savings rate
increases to s.
K= K
K*
K = s A K0.3 + (1- )K
K1
Now capital accumulates
according to the new
equation with the higher
savings rate
K= K
K*
K = s A K0.3 + (1- )K
K1
And we proceed
exactly like before.
K= K
K*
K = s A K0.3 + (1- )K
K*
K0
Eventually a new,
higher steady state
capital stock is
reached.
K= K
K0
K*
120000
100000
80000
60000
40000
20000
0
-20
-10
10
20
30
Savings Rate
40
50
60
70
Y = A K1/3H2/3
1.5
=
0.5
Sources of Growth?
Growth through savings:
Increases in GDP driven by higher K/Y
Human capital: h
200
Y/N
K/Y^(1/2)
h
L/N
100
50
1950
A^(3/2)
1960
1970
1980
1990
2000
2010
1600
800
Y/N
K/Y^(1/2)
400
h
L/N
200
A^(3/2)
100
50
1950
1960
1970
1980
1990
2000
2010
1600
800
Y/N
K/Y^(1/2)
400
h
L/N
200
A^(3/2)
100
50
1960
1970
1980
1990
2000
2010
200
Y/N
K/Y^(1/2)
h
L/N
100
50
1950
A^(3/2)
1960
1970
1980
1990
2000
2010
200
Y/N
K/Y^(1/2)
100
h
L/N
A^(3/2)
50
25
1960
1970
1980
1990
2000
2010
Findings
In growing countries, growth is not driven by K/Y,
its driven by A
Look to histories
Improvements in technology
Improvements in institutions