UIUC Econ303 Section I Growth theory Chapter 8 TFP impact of government policy Number matters Capital accumulation is faster if s is higher z is higher or n is lower Quantitatively which one is more important Intermediate Macro Zhao 1 UIUC Econ303 Number matters page 30 31 further closer Capital accumulation engine will not sustain growth over extended time period Intermediate Macro Zhao 2 UIUC Econ303 Technological progress overcomes diminishing MPK Real GDP per worker 120 000 Rising total factor productivity shifts curve up 90 000 60 000 30 000 0 20 000 50 000 80 000 100 000 Physical capital per worker Capital difference only explains 25 of income difference The rest is all Solow residual Intermediate Macro Zhao 3 UIUC Econ303 Only continuous increase of z leads to sustained growth Every percent increase of z leads to 1 increase of GDP growth rate GDP per capita growth rate even without any changes in capital and labor Two views of technology Technology as knowledge and blue prints by itself Technology as skills workers have embodied by labor Solow residual z is a combination of A and H Expansion of production function Separate human capital accumulation from technology progress Human capital H HN is quality adjusted labor input Labor input of 1 high school graduate is 1 Labor input of 1 college graduate is 1 4 Knowledge and know hows A TFP z increases either A or H increases Intermediate Macro Zhao 4 UIUC Econ303 Education attainment 25 by ethnicity High School and more Year Total White Black College and more Hispanic Total White Black Hispanic 2000 84 1 84 9 78 5 57 25 6 26 1 16 5 10 6 1990 77 6 79 1 66 2 50 8 21 3 22 11 3 9 2 1980 68 6 70 5 51 2 45 3 17 17 8 7 9 7 9 1970 55 2 57 4 33 7 NA 11 11 6 4 5 NA 1959 43 7 46 1 20 7 NA 8 1 8 6 3 3 NA 1950 34 3 NA 13 7 NA 6 2 NA 2 3 NA 1940 24 5 26 1 7 7 NA 4 6 4 9 1 3 NA 2010 87 1 87 6 84 2 62 9 29 9 30 3 19 8 13 9 source Bureau of Census Intermediate Macro Zhao 5 UIUC Econ303 Quality of the labor force explains 25 40 of income difference Accumulation of human capital a la Robert Lucas Time allocation between production of human capital and other goods Human capital 1 u Other goods u Change of human capital over time efficiency of the education sector student time on the job training teacher s human capital Growth rate of human capital Intermediate Macro Zhao 6 UIUC Econ303 The remaining 35 50 is explained by technology difference A Which is which 1 Company A purchases 10 new computers with latest hardware and software Physical capital accumulation 2 Workers in company A getting trained to use the latest software Human capital accumulation 3 With new software and trained worker company A implements the on demand inventory system which reduces production cost Knowledge and knowhows 4 Company A has to spend man hours on debt collection as the court system in its country fails to effectively enforce contract Intermediate Macro Zhao Institution or Other 7 UIUC Econ303 Technology progress For scientific discovery to show up in TFP and GDP Theory vs implementation Revolution vs marginal improvement Invention vs adoption Country that is not at the technology frontier can have higher TFP growth temporarily through adopting the existing technology Computing technology The Turing machine was described by Alan Turing in 1936 which is a thought experiment representing a computing machine The microcomputer small low cost computers that could be owned by individuals and small businesses first appeared in the 1970s Moore s law the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every 18 month An electronic patient record EPR a systematic collection of electronic health information about individual patients It is a record in digital format that is capable of being shared across different health care settings by being embedded in network connected enterprise wide information systems Intermediate Macro Zhao 8 UIUC Econ303 Accelerated growth and development A great leap forward The infamous Luddites Intermediate Macro Zhao 9 UIUC Econ303 Impact of government policy on economic growth Must through the following channels A Increase labor input per capita more workers in the adult population short B Capital accumulation more machines run long run C Human capital accumulation better workers D Technology progress more efficient use of workers and machines Policy and Growth page 32 Through what channel does the following policy affect economic growth Intermediate Macro Zhao 10 UIUC Econ303 Some interesting observation The following have been found to be positively correlated with economic growth Fraction of college students in engineering instead of those in law Distance from equator latitude Genetic distance from the frontier country What kind of story would you tell about these observations Intermediate Macro Zhao 11 UIUC Econ303 Intermediate Macro Zhao 12
View Full Document
Unlocking...