Core Growth TheorySlide 2The Structure of U.S. GrowthSlide 4Slide 5Slide 6Slide 7The Determinants of Labor ProductivitySlide 9Slide 10Slide 11Slide 12Slide 13Slide 14Supply Effects of InvestmentSlide 16Slide 17Slide 18Slide 19The Need for National SavingRecall the Definition of InvestmentThe Links Among Saving, Investing and ProductivitySlide 23Slide 24The New Economic Order: Open Borders for Goods, Technology and FinanceReturns to Education Have RisenSlide 27The Most Rapid Growth in Developing Nations Has Occurred for those Having.....High Investment Shares of GDP,Slide 30Slide 31BRINNER1902mit04.pptCore Growth Theory–Labor and Capital Inputs –Determinants of Labor Productivity–Supply Effects of Investment–The Need for National SavingsBRINNER2902mit04.pptCore Growth TheoryGrowth theory is “Macro Macro”–it attempts to explain differences in economic performance over decades and centuries, rather than months, quarters, or yearsWhat allows an economy to produce more goods in one decade than another?What allows one country to produce more? What creates convergence?BRINNER3902mit04.pptThe Structure of U.S. Growthpopulationx ( 1 -dependency rate )= working age populationx labor force participation rate= labor forcex 1 - unemployment rateBRINNER4902mit04.pptThe Structure of U.S. Growth= employmentx hours per employee=hours workedx output per hour ( “labor productivity” )=outputBRINNER5902mit04.pptThe Structure of U.S. GrowthLABOR INPUTS TO GROWTH0501001502002503001950195219541956195819601962196419661968197019721974197619781980198219841986198819901992199419961998MILLIONS050100150200250300POPULATION CIVILIAN LABOR FORCE EMPLOYMENT POPULATION 16-65BRINNER6902mit04.pptThe Structure of U.S. GrowthWORK EFFORT AND PRODUCTIVITY0.000.501.001.502.002.503.003.504.004.505.001950195219541956195819601962196419661968197019721974197619781980198219841986198819901992199419961998INDEXED:1950=1EMPLOYMENTHOURS PER WEEKOUT[PUT PER HOURGDP92CBRINNER7902mit04.pptThe Structure of U.S. GrowthPOPULATION POPULATION 16-65CIVILIAN LABOR FORCEEMPLOYMENTUNEMPLOYMENT RATE - ALL CIVILIAN WORKERS50-98 1.2% 1.2% 1.7% 1.7% -0.3%50-73 1.4% 1.2% 1.6% 1.6% -0.3%73-98 1.0% 1.2% 1.7% 1.8% -0.3%OUT[PUT PER HOURGDP92CHOURS PER WEEK50-98 1.9% 3.3% -0.3%50-73 2.7% 3.9% -0.4%73-98 1.2% 2.7% -0.2%BRINNER8902mit04.pptThe Determinants of Labor ProductivityWhat enables an employee to produce more or less per hour at the place of work?What “infrastructure” can the nation provide to influence:–the level of output in a workplace?–the efficiency of connection between workplaces?BRINNER9902mit04.pptThe Determinants of Labor ProductivityWhat enables an employee to produce more or less per hour?–The “state of the art” potentially available (the production possibility frontier”).–His/ Her own education and training to absorb the state of the art.–The quantity and quality of available, complementary “tools” such as computers, assembly machines.BRINNER10902mit04.pptThe Determinants of Labor ProductivityWhat “infrastructure” can the nation provide to influence:–the level of output in a workplace?»education, health, attitudes toward work, regulation, taxation–the efficiency of “connections” between workplaces?»communication, transportation, common language, anti-monopoly regulation, global accessBRINNER11902mit04.pptThe Determinants of Labor ProductivityEconomists can refer to almost all of these factors as simply different types of “capital”“Capital” in this context simply means something that is long-lasting and not used up by the process of productionMore narrowly, “capital” sometimes only means tangible goods such as equipment, buildings, highwaysBRINNER12902mit04.pptThe Determinants of Labor ProductivityTypes of Capital–Tangible equipment and structures–Human, from brains through brawn–Technological, e.g. accumulated R&D–Infrastructure, i.e. tangible goods not owned by one enterpriseBRINNER13902mit04.pptThe Structure of U.S. GrowthCAPITAL INPUTS TO GROWTH02004006008001000120019601962196419661968197019721974197619781980198219841986198819901992199419961998BILLIONS, 1992 PRICES0100020003000400050006000700080009000CAPITAL STOCK -POLLUTION ABATEMENTEQUIPMENT CAPITAL STOCK -RESEARCH &DEVELOPMENT CAPITAL STOCK -GOVERNMENTINFRASTRUCTUREAGGREGATE CAPITALSTOCK (RIGHT SCALE)BRINNER14902mit04.pptThe Structure of U.S. GrowthAGGREGATE CAPITAL STOCK (RIGHT SCALE)CAPITAL STOCK - POLLUTION ABATEMENT EQUIPMENT CAPITAL STOCK - RESEARCH & DEVELOPMENT CAPITAL STOCK - GOVERNMENT INFRASTRUCTUREOUTPUT PER HOURGROWTH60-98 3.8% 6.7% 3.9% 2.2% 1.8%60-73 4.3% 13.7% 5.5% 3.9% 3.0%73-98 3.6% 3.8% 3.0% 1.4% 1.2%SHIFT -0.7% -10.0% -2.5% -2.6% -1.9%BRINNER15902mit04.pptSupply Effects of InvestmentDefining Investment–All output is either consumed or invested. This is the fundamental choice made by any important agent in an economy: enjoy today or conserve for use tomorrow.–Consumed simply means used up in the same period it was produced–Invested therefore means it was not used up and is available in at least the next periodBRINNER16902mit04.pptSupply Effects of InvestmentCapital is:–the sum of all past investments of the same type –minus all depreciation: loss through wear & tear, obsolescence & displacementBRINNER17902mit04.pptSupply Effects of InvestmentK (Capital this period)= K\1 (Capital in the prior period) + I (Investment this period)- D (Depreciation this period)or, K=K\1+I-D=K\2+I\1-D\1+I-D=K\3+I\2-D\2+I\1-D\1+I-D=K\(N+1) + ( I\N+...+I ) - ( D\N+ ...+D )BRINNER18902mit04.pptSupply Effects of InvestmentWhat nuances should be considered when differentiating among types of capital--equipment & buildings, human, technology, infrastructure?BRINNER19902mit04.pptSupply Effects of InvestmentWhat nuances should be considered when differentiating among types of capital--equipment & buildings, human, technology, infrastructure?Causes of Decay or ObsolescencePotential for Multiple Simultaneous Users= “Public Good”Ability to own or control once created/ put in useBRINNER20902mit04.pptThe Need for National SavingDefining Saving–All national income is either consumed or saved. This is another way of looking at the fundamental choice made by an economy: enjoy today or conserve for use tomorrow.–Consumed again simply means used up in the same period it was produced–saved therefore means it was not used up and is available in at
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