Williamson, JG. 1996. Globalization, convergence, and history. Journal of Economic History: 277-306.
From 1850 to the present, the author highlights three main stages of global growth from the perspective of convergence. "Thus history offers an unambiguous positive correlation between globalization and convergence. When the pre-World War I years are examined in detail, the correlation turns out to be causal: globalization played the critical role in contributing to convergence" (from abstract; 277).
What is the meaning of convergence? "The critical bottom line for me is whether the living standard gap between rich and poor countries falls over time. Convergence implies an erosion in this gap, at least in percentage terms. New growth theorists call this sigma-convergence. To get sigma-convergence poor countries must grow faster than rich, an event new growth theorists call beta-convergence" (279).
Showing posts with label Economic Growth. Show all posts
Showing posts with label Economic Growth. Show all posts
Saturday, March 21, 2009
Tuesday, January 27, 2009
Boyer: The Convergence Hypothesis Revisited
Boyer, R, and CEPREMAP (Center). 1993. The Convergence Hypothesis Revisited: Globalization But Still the Century of Nations? CEPREMAP.
The convergence argument seed domestic institutions and unique attributes being increasingly homogenized as the logic of capital dictates a certain kind of economic performance and institutional construction so as to maximize efficiency of production and transaction. However, Boyer argues that this strong hypothesis may miss the mark a bit, and that the end of the nation-state should not be glibly foretold. Instead, one should see this transition as a diverse process where different institutions matter.
"The argument proceeds along the following lines: First, ambiguities in the definition of convergence are spelled out by disentangling three distinct meanings: economic convergence, similarity in the style of development, and finally the characteristics of institutional settings that organize interactions between economy and polity. Second, when precise tests of the main macroeconomic variables are built, we see that no clear trend to convergence or divergence emerges. Third, even though the socialist bloc has collapsed, this has not reduced diversity. Rather it has revealed the coexistence and competition of various kinds of capitalism" (30).
"According to the first definition of convergence, the globalization of finance, labor, technologies, and products proceeds so that each nation comes to resemble a small-or medium-size firm in an ocean of pure and perfect competition. Consequently, any Keynesian-style intervention is bound to fail, given that the competition is now international and foreign producers will capture the domestic market if local producers do not adjust to the costs and prices achieved by competitors" (30).
"For many social scientist, convergence has another meaning: not pure economic performance, but the basic constitutional order, organizing interactions between polity and economy...Convergence in this sense is to be demonstrated by the collapse of authoritarian regimes and their replacement by more democratic constitutions" (31).
The third possibility is the most complex option, and involved mixed convergence: each economy is a combination of a wide variety of distinct factors that help to shape its output. If these institutions matched closely with the institutions of another economy and that economy was performing better, it would be possible to converge.
Boyer then explores empirical data on convergence of productivity since WWII. The author finds the evidence to be mixed and argues that results depend heavily on sample size and selection.
There is some evidence that things have converged in the late 20th century. However, this is not universal, and this evidence does not take into consideration that convergence typically occurs within a core set of countries that have already experienced a certain degree of industrialization and development.
"The 1990s and the next century, too, are likely to be still the epoch of nations. The complex set of contradictory forces that are pushing simultaneously toward convergence and divergence are far from moving toward a single best institutional design" (59).
The following chapter is also excellent, though I did not write an abstract:
Wade, R. 1996. Globalization and its limits: reports of the death of the national economy are greatly exaggerated. National Diversity and Global Capitalism: 60-88.
The convergence argument seed domestic institutions and unique attributes being increasingly homogenized as the logic of capital dictates a certain kind of economic performance and institutional construction so as to maximize efficiency of production and transaction. However, Boyer argues that this strong hypothesis may miss the mark a bit, and that the end of the nation-state should not be glibly foretold. Instead, one should see this transition as a diverse process where different institutions matter.
"The argument proceeds along the following lines: First, ambiguities in the definition of convergence are spelled out by disentangling three distinct meanings: economic convergence, similarity in the style of development, and finally the characteristics of institutional settings that organize interactions between economy and polity. Second, when precise tests of the main macroeconomic variables are built, we see that no clear trend to convergence or divergence emerges. Third, even though the socialist bloc has collapsed, this has not reduced diversity. Rather it has revealed the coexistence and competition of various kinds of capitalism" (30).
"According to the first definition of convergence, the globalization of finance, labor, technologies, and products proceeds so that each nation comes to resemble a small-or medium-size firm in an ocean of pure and perfect competition. Consequently, any Keynesian-style intervention is bound to fail, given that the competition is now international and foreign producers will capture the domestic market if local producers do not adjust to the costs and prices achieved by competitors" (30).
"For many social scientist, convergence has another meaning: not pure economic performance, but the basic constitutional order, organizing interactions between polity and economy...Convergence in this sense is to be demonstrated by the collapse of authoritarian regimes and their replacement by more democratic constitutions" (31).
The third possibility is the most complex option, and involved mixed convergence: each economy is a combination of a wide variety of distinct factors that help to shape its output. If these institutions matched closely with the institutions of another economy and that economy was performing better, it would be possible to converge.
Boyer then explores empirical data on convergence of productivity since WWII. The author finds the evidence to be mixed and argues that results depend heavily on sample size and selection.
There is some evidence that things have converged in the late 20th century. However, this is not universal, and this evidence does not take into consideration that convergence typically occurs within a core set of countries that have already experienced a certain degree of industrialization and development.
"The 1990s and the next century, too, are likely to be still the epoch of nations. The complex set of contradictory forces that are pushing simultaneously toward convergence and divergence are far from moving toward a single best institutional design" (59).
The following chapter is also excellent, though I did not write an abstract:
Wade, R. 1996. Globalization and its limits: reports of the death of the national economy are greatly exaggerated. National Diversity and Global Capitalism: 60-88.
Thursday, December 18, 2008
Collier and Gunning: Explaining African Economic Performance
Collier, P, and JW Gunning. 1999. Explaining African Economic Performance. JOURNAL OF ECONOMIC LITERATURE 37: 64-111.
Why has Africa experienced such a slow rate of economic growth? This is explored through a literature review of growth studies, specifically those that focus on endogenous growth. These models are grouped into six categories, but the results are still problematic: Africa is growing even slower than it would be expected to. The later focus of the article is on different national agents: farming households and manufacturing firms. "Drawing on the new literature on 'social capital,' we argue that neither households or firms have as yet sufficiently created the social institutions that promote growth" (64). Section four explores the impact of regulation. "In Section 5 we bring together the argument. Both a hostile environment, particularly high risks, and inadequate social capital, particularly dysfunctional government, have lowered the returns on investment. The low returns on investment have caused capital flight on a massive scale" (65).
That is a summary of the introduction.
"Above, we have made two distinctions in the causes of slow growth. The first was between those that are intrinsic, notably geography, and those that are policy-dependent. The second was between those causes well-proxied in the regression analysis, which are predominantly macro, and those identified at the levels of agents and markets, which are microeconomic. There are thus three conceptually distinct causes of slow growth: geography, macroeconomic policies, and microeconomic policies" (100).
Why has Africa experienced such a slow rate of economic growth? This is explored through a literature review of growth studies, specifically those that focus on endogenous growth. These models are grouped into six categories, but the results are still problematic: Africa is growing even slower than it would be expected to. The later focus of the article is on different national agents: farming households and manufacturing firms. "Drawing on the new literature on 'social capital,' we argue that neither households or firms have as yet sufficiently created the social institutions that promote growth" (64). Section four explores the impact of regulation. "In Section 5 we bring together the argument. Both a hostile environment, particularly high risks, and inadequate social capital, particularly dysfunctional government, have lowered the returns on investment. The low returns on investment have caused capital flight on a massive scale" (65).
That is a summary of the introduction.
"Above, we have made two distinctions in the causes of slow growth. The first was between those that are intrinsic, notably geography, and those that are policy-dependent. The second was between those causes well-proxied in the regression analysis, which are predominantly macro, and those identified at the levels of agents and markets, which are microeconomic. There are thus three conceptually distinct causes of slow growth: geography, macroeconomic policies, and microeconomic policies" (100).
Wednesday, November 26, 2008
Hahn and Mathews: The Theory of Economic Growth: A Survey
FH Hahn and RCO Matthews, “The Theory of Economic Growth: A Survey,” Economic Journal 74, no. 296 (1964): 779-902.
Below are only a handful of quotes selected, mostly focusing on the relationship between the Harrod-Domar model of growth and neo-classical models.
"The distinctive assumptions of the Harrod-Domar model, in the schematic form in which we shall now present it, are as follows: (1) A constant proportion...of income...is devoted to savings. (2) The amounts of capital and of labour needed to produce a unit of output are both uniquely given; for the moment this may be thought of as the result of technological considerations--fixed coefficients in production...(3) The labour force grows over time at a constant rate...fixed by non-economic, demographic forces" (783).
"The requirements for steady growth in Y may be looked at from the side of the two inputs, labour and capital, in turn. They are not on a par, because capital is a produced means of production, and labour is not...Labour. Since labour requirements per unit of output are given, it is impossible for Y permanently to grow at a constant rate greater than n, the rate of growth of the labour supply...Capital. For equilibrium, the amount people plan to save must equal the amount they plan to invest" (783-4).
Neo-Classical models:
"Let us revert to Harrod-Domar as our starting-point. We restore the assumption dropped in the preceding section that employment must grow at the same rate as the labour supply in order for there to be equilibrium. What we drop is the assumption that the amount of labour and capoital required to produce a unit of output are fixed. Instead we postulate a continuous function linking output to the inputs of capital and labour. We continue to assume that there are constant returns to scale and no technical progress. The capital-output ratio is now variable" (787-8).
"It would be wrong to suppose that Harrod was unaware of the arguments on which the neo-classical model is based. His grounds for rejecting them were not that he maintained that the capital-output ratio was unalterable for technological reasons" (789-90).
Below are only a handful of quotes selected, mostly focusing on the relationship between the Harrod-Domar model of growth and neo-classical models.
"The distinctive assumptions of the Harrod-Domar model, in the schematic form in which we shall now present it, are as follows: (1) A constant proportion...of income...is devoted to savings. (2) The amounts of capital and of labour needed to produce a unit of output are both uniquely given; for the moment this may be thought of as the result of technological considerations--fixed coefficients in production...(3) The labour force grows over time at a constant rate...fixed by non-economic, demographic forces" (783).
"The requirements for steady growth in Y may be looked at from the side of the two inputs, labour and capital, in turn. They are not on a par, because capital is a produced means of production, and labour is not...Labour. Since labour requirements per unit of output are given, it is impossible for Y permanently to grow at a constant rate greater than n, the rate of growth of the labour supply...Capital. For equilibrium, the amount people plan to save must equal the amount they plan to invest" (783-4).
Neo-Classical models:
"Let us revert to Harrod-Domar as our starting-point. We restore the assumption dropped in the preceding section that employment must grow at the same rate as the labour supply in order for there to be equilibrium. What we drop is the assumption that the amount of labour and capoital required to produce a unit of output are fixed. Instead we postulate a continuous function linking output to the inputs of capital and labour. We continue to assume that there are constant returns to scale and no technical progress. The capital-output ratio is now variable" (787-8).
"It would be wrong to suppose that Harrod was unaware of the arguments on which the neo-classical model is based. His grounds for rejecting them were not that he maintained that the capital-output ratio was unalterable for technological reasons" (789-90).
Monday, November 17, 2008
Barro: Economic Growth in a Cross Section of Countries
RJ Barro, “Economic Growth in a Cross Section of Countries,” NBER Working Paper (1991).
"For 98 countries in the period of 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school enrollment rates) and negatively related to the initial (1960) level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions"
In standard neoclassical models of economic growth, a country's growth rate tends to increase in an inverse relationship with the relative size of that country's starting degree of income. "The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407). However, this study claims that this does not fit with empirical evidence.
"Although the simple correlation between per capita growth...and the initial...level of per capita GDP is close to zero, the correlation becomes substantially negative if measures of initial human capital...are held constant. Moreover, given the level of initial per capital GDP, the growth rate is substantially positively related to the starting amount of human capital. Thus, poor countries tend to catch up with rich countries if the poor countries have high human capital per person...but not otherwise. As a related matter, countries with high human capital have low fertility rates and high ratios of physical investment in GDP" (438).
"For 98 countries in the period of 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school enrollment rates) and negatively related to the initial (1960) level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions"
In standard neoclassical models of economic growth, a country's growth rate tends to increase in an inverse relationship with the relative size of that country's starting degree of income. "The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407). However, this study claims that this does not fit with empirical evidence.
"Although the simple correlation between per capita growth...and the initial...level of per capita GDP is close to zero, the correlation becomes substantially negative if measures of initial human capital...are held constant. Moreover, given the level of initial per capital GDP, the growth rate is substantially positively related to the starting amount of human capital. Thus, poor countries tend to catch up with rich countries if the poor countries have high human capital per person...but not otherwise. As a related matter, countries with high human capital have low fertility rates and high ratios of physical investment in GDP" (438).
Saturday, November 15, 2008
Nelson et al.: Investment in Humans, Technological Diffusion and Economic Growth
RR Nelson, ES Phelps, and RAND CORP SANTA MONICA CALIF, “Investment in Humans, Technological Diffusion and Economic Growth” (1966).
"Most economic theorists have embraced the princip0le that certain kinds of education...equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one" (69).
"Thus far, economic growth theory has concentrated on the role of education as it relates to the completely routinized job" (69).
"We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion" (70).
The author then explores two possible models of how education causes diffusion of technology.
"The general subject at this session is the relationshipo between capital structure and technolgoical progerss. Recalling that the process of education can be viewed as an act of investment in people that educated people are bearers of human capital, we see that this paper has relevance to that subject
"Most economic theorists have embraced the princip0le that certain kinds of education...equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one" (69).
"Thus far, economic growth theory has concentrated on the role of education as it relates to the completely routinized job" (69).
"We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion" (70).
The author then explores two possible models of how education causes diffusion of technology.
"The general subject at this session is the relationshipo between capital structure and technolgoical progerss. Recalling that the process of education can be viewed as an act of investment in people that educated people are bearers of human capital, we see that this paper has relevance to that subject
Friday, November 14, 2008
Becker, Murphy and Tamura: Human Capital, Fertility and Economic Growth
GS Becker, KM Murphy, and R Tamura, “Human Capital, Fertility, and Economic Growth,” Journal of Political Economy 98, no. S5 (1990): 12.
"Our analysis of growth assumes endogenous fertility and a rising rate of return on human capital as the stock of human capital increases. When human capital is abundant, rates of return on human capital investments are high relative to rates of return on children, whereas when human capital is scarce, rates of return on human capital are low relative to those of children. As a result, societies with limited human capital choose large families and invest little in each member; those with abundant human capital do the opposite. This leads to two stable steady states. One has large families and little human capital; the other has small families and perhaps growing human and physical capital" (12).
Smith talked about growth vis-a-vis the division of labor, but not rigorously. Malthus presented a theory of economic growth that achieved a kind of steady-state through changes in fertility and death rates. Neoclassical accounts go much further than these accounts and pointing towards the determinants of economic growth. However, these authors present a theory that focuses most heavily on human capital accumulation. "Crucial to our analysis is the assumption that rates of return on investments in human capital rise rather than decline as the stock of human capital increases, at least until the stock becomes large" (13). This leads to a potential variety of steady-states.
"Our analysis of growth assumes endogenous fertility and a rising rate of return on human capital as the stock of human capital increases. When human capital is abundant, rates of return on human capital investments are high relative to rates of return on children, whereas when human capital is scarce, rates of return on human capital are low relative to those of children. As a result, societies with limited human capital choose large families and invest little in each member; those with abundant human capital do the opposite. This leads to two stable steady states. One has large families and little human capital; the other has small families and perhaps growing human and physical capital" (12).
Smith talked about growth vis-a-vis the division of labor, but not rigorously. Malthus presented a theory of economic growth that achieved a kind of steady-state through changes in fertility and death rates. Neoclassical accounts go much further than these accounts and pointing towards the determinants of economic growth. However, these authors present a theory that focuses most heavily on human capital accumulation. "Crucial to our analysis is the assumption that rates of return on investments in human capital rise rather than decline as the stock of human capital increases, at least until the stock becomes large" (13). This leads to a potential variety of steady-states.
Uzawa: Optimum Technical Change in an Aggregative Model of Economic Growth
H Uzawa, “Optimum Technical Change in an Aggregative Model of Economic Growth,” International Economic Review 6, no. 1 (1965): 18-31.
"In this paper we are interested in formulating a model of economic growth in which an advancement in the state of technological knowledge is achieved only be engaging scarce resources in some positive quantities, and in analyzing the pattern of the allocation of scarce resources that results in an optimum growth" (18).
"In this paper we are interested in formulating a model of economic growth in which an advancement in the state of technological knowledge is achieved only be engaging scarce resources in some positive quantities, and in analyzing the pattern of the allocation of scarce resources that results in an optimum growth" (18).
Lucas: On the Mechanics of Development Planning
RE Lucas, “On the Mechanics of Development Planning,” Journal of Monetary Economics 22, no. 1 (1988): 3-42.
"This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing" (3).
The piece begins with a general overview of 1983 data regarding income, development and growth levels. There is clearly a large array of different levels of living standards and material improvement. Lucas exits this overview of the statistics by wondering whether or not there is something the countries with lower growth rates can do to improve their situation. "Once one starts to think about them, it is hard to think about anything else" (5). This, then, becomes the catalyst for a theory of economic development.
"Even granted its limitations, the simple neoclassical model has made basic contributions to our thinking about economic growth. Qualitatively, it emphasizes a distinction between 'growth effects'--changes in parameters that alter growth rates along balanced paths--and 'level effects--changes that raise or lower balanced growth paths without affecting their slope--that is fundamental in thinking about policy changes" (12).
"In the absence of differences in pure technology then, and under the assumption of no factor mobility, the neoclassical model predicts a strong tendency to income equality and equality in growth rates, tendencies we can observe within countries and, perhaps, within the wealthiest countries taken as a group, but which simply cannot be seen in the world at large. When factor mobility is permitted, this prediction is very powerfully reinforced. Factors of production, capital or labor or both, will flow to the highest returns, which is to say where each is relatively scarce. Capital-labor ratios will move rapidly to equality, and with them factor prices" (16).
Lucas finds that the human capital model performs as well as the Solow model. "What can be concluded from these exercise? Normatively, it seems to me, very little: The model I have just described has exactly the same ability to fit US data as does the Solow model in which equilibrium and efficient growth rates coincide" (27).
"The model I have just worked through treats the decision to accumulate human capital as equivalent to a decision to withdraw effort from production--to go to school, say. As many economists have observed, on-the-job-training or learning-by-doing appear to be at least as important as schooling in the formation of human capital. It would not be difficult to incorporate such effects into the previous model, but it is easier to think about one thing at a time so I will just set out an example of a system...in which all human capital accumulation is learning-by-doing" (27).
UPDATE:
"My aim, as I said at the beginning of these lectures, has been to try to find what I called 'mechanics' suitable for the study of economic development: that is, a system of differential equations the solution to which imitates some of the main features of the economic behavior we observe in the world economy" (39).
"The model that I think is central was developed in section 4. It is a system with a given rate of population growth but which is acted on by no other outside or exogenous forces. There are two kinds of capital...in the system:P physical capital that is accumulated and utilized in production under a familiar neoclassical technology, and human capital that enhances the productivity of both labor and physical capital , and is accumulated according to a 'law' having the crucial property that a constant level of effort produces a constant growth rate of the stock, independent of the level already attained" (39).
"A successful theory of economic development clearly needs, in the first place, mechanics that are consistent with sustained growth and with sustained diversity in income levels...But there is no one pattern of growth to which all economies conform, so a useful theory needs also to capture some forces for change in these patterns, and a mechanics that permits these forces to operate" (41).
"This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing" (3).
The piece begins with a general overview of 1983 data regarding income, development and growth levels. There is clearly a large array of different levels of living standards and material improvement. Lucas exits this overview of the statistics by wondering whether or not there is something the countries with lower growth rates can do to improve their situation. "Once one starts to think about them, it is hard to think about anything else" (5). This, then, becomes the catalyst for a theory of economic development.
"Even granted its limitations, the simple neoclassical model has made basic contributions to our thinking about economic growth. Qualitatively, it emphasizes a distinction between 'growth effects'--changes in parameters that alter growth rates along balanced paths--and 'level effects--changes that raise or lower balanced growth paths without affecting their slope--that is fundamental in thinking about policy changes" (12).
"In the absence of differences in pure technology then, and under the assumption of no factor mobility, the neoclassical model predicts a strong tendency to income equality and equality in growth rates, tendencies we can observe within countries and, perhaps, within the wealthiest countries taken as a group, but which simply cannot be seen in the world at large. When factor mobility is permitted, this prediction is very powerfully reinforced. Factors of production, capital or labor or both, will flow to the highest returns, which is to say where each is relatively scarce. Capital-labor ratios will move rapidly to equality, and with them factor prices" (16).
Lucas finds that the human capital model performs as well as the Solow model. "What can be concluded from these exercise? Normatively, it seems to me, very little: The model I have just described has exactly the same ability to fit US data as does the Solow model in which equilibrium and efficient growth rates coincide" (27).
"The model I have just worked through treats the decision to accumulate human capital as equivalent to a decision to withdraw effort from production--to go to school, say. As many economists have observed, on-the-job-training or learning-by-doing appear to be at least as important as schooling in the formation of human capital. It would not be difficult to incorporate such effects into the previous model, but it is easier to think about one thing at a time so I will just set out an example of a system...in which all human capital accumulation is learning-by-doing" (27).
UPDATE:
"My aim, as I said at the beginning of these lectures, has been to try to find what I called 'mechanics' suitable for the study of economic development: that is, a system of differential equations the solution to which imitates some of the main features of the economic behavior we observe in the world economy" (39).
"The model that I think is central was developed in section 4. It is a system with a given rate of population growth but which is acted on by no other outside or exogenous forces. There are two kinds of capital...in the system:P physical capital that is accumulated and utilized in production under a familiar neoclassical technology, and human capital that enhances the productivity of both labor and physical capital , and is accumulated according to a 'law' having the crucial property that a constant level of effort produces a constant growth rate of the stock, independent of the level already attained" (39).
"A successful theory of economic development clearly needs, in the first place, mechanics that are consistent with sustained growth and with sustained diversity in income levels...But there is no one pattern of growth to which all economies conform, so a useful theory needs also to capture some forces for change in these patterns, and a mechanics that permits these forces to operate" (41).
Romer: Endogenous Technological Change
PM Romer, “Endogenous Technological Change,” Journal of Political Economy 98, no. S5 (1990): 71.
"Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth" (71).
The author puts forth three premises of the article: The first is that changes in technology is the key stone of economic growth. In this sense, this Romer model closely mirrors Solow's model. "Technological change provides the incentive for continued capital accumulation, and together, capital accumulation and technological change account for much of the increase in output per hour worked" (72). The second premise is that technology improvements are brought about by people who are directly responding to market motivations. "Thus the model is one of endogenous rather than exogenous technological change. This does not mean that everyone who contributes to technological change is motivated by market incentives...The premise here is that market incentives nonetheless play an essential role in the process whereby new knowledge is translated into goods with practical value" (72). According to Romer, the most fundamental supposition is the last: this involves the creation of new "instructions" for dealing with raw materials. Once the cost of these "instructions" has been borne, the benefits continue to accumulate.
There is then an extended discussion of the distinction between rivalrous, nonrivalrous, excludable and nonexcludable goods and how they are and may be treated in economic growth models.
The model is then worked out in some detail.
"The model presented here is essentially the one-sector neoclassical model with technological change, augmented to give an endogenous explanation of the source of the technological change" (99).
"The most interesting positive implication of the model is that an economy with a larger total stock of human capital will experience faster growth" (99).
"Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth" (71).
The author puts forth three premises of the article: The first is that changes in technology is the key stone of economic growth. In this sense, this Romer model closely mirrors Solow's model. "Technological change provides the incentive for continued capital accumulation, and together, capital accumulation and technological change account for much of the increase in output per hour worked" (72). The second premise is that technology improvements are brought about by people who are directly responding to market motivations. "Thus the model is one of endogenous rather than exogenous technological change. This does not mean that everyone who contributes to technological change is motivated by market incentives...The premise here is that market incentives nonetheless play an essential role in the process whereby new knowledge is translated into goods with practical value" (72). According to Romer, the most fundamental supposition is the last: this involves the creation of new "instructions" for dealing with raw materials. Once the cost of these "instructions" has been borne, the benefits continue to accumulate.
There is then an extended discussion of the distinction between rivalrous, nonrivalrous, excludable and nonexcludable goods and how they are and may be treated in economic growth models.
The model is then worked out in some detail.
"The model presented here is essentially the one-sector neoclassical model with technological change, augmented to give an endogenous explanation of the source of the technological change" (99).
"The most interesting positive implication of the model is that an economy with a larger total stock of human capital will experience faster growth" (99).
Barro et al.: Convergence Across States and Regions
Robert J. Barro et al., “Convergence Across States and Regions,” in (1991: The Brookings Institution, 1991), 107-182, http://www.jstor.org/stable/2534639 .
"An important economic question is whether poor countries or regions tend to converge toward rich ones...Although some economic theories predict convergence, the empirical evidence has been a subject of debate. In this study we add to the evidence by extending our previous analysis of economic growth across the US states...The overall evidence weighs heavily in favor of convergence: both for sectors and for state aggregates, per capita income and product in poor states tend to grow faster than in rich states. The rate of convergence3 is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2 percent a year" (107-8). This method is then applied to Europe with similar results recorded.
The origin of convergence in the neoclassical model is centered on the assumption of diminishing returns to capital. Because countries who have lower ratios of capital to labor experience these diminishing returns less acutely, they are able to grow more quickly and converge on countries with higher levels of income per capita. The further a country finds itself below the "steady-state", the more likely it is to grow relatively more quickly.
An additional great variety of factors affects convergence. For example, if there are high levels of capital mobility, the diminished capital to labor ratios in poorer countries may actually improve and the affects of diminishing returns may be more strongly felt. Additionally, greater technology transfer from more wealthy countries to more poor countries could speed up the affects of convergence.
The remainder of the paper is the statistical analysis.
"An important economic question is whether poor countries or regions tend to converge toward rich ones...Although some economic theories predict convergence, the empirical evidence has been a subject of debate. In this study we add to the evidence by extending our previous analysis of economic growth across the US states...The overall evidence weighs heavily in favor of convergence: both for sectors and for state aggregates, per capita income and product in poor states tend to grow faster than in rich states. The rate of convergence3 is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2 percent a year" (107-8). This method is then applied to Europe with similar results recorded.
The origin of convergence in the neoclassical model is centered on the assumption of diminishing returns to capital. Because countries who have lower ratios of capital to labor experience these diminishing returns less acutely, they are able to grow more quickly and converge on countries with higher levels of income per capita. The further a country finds itself below the "steady-state", the more likely it is to grow relatively more quickly.
An additional great variety of factors affects convergence. For example, if there are high levels of capital mobility, the diminished capital to labor ratios in poorer countries may actually improve and the affects of diminishing returns may be more strongly felt. Additionally, greater technology transfer from more wealthy countries to more poor countries could speed up the affects of convergence.
The remainder of the paper is the statistical analysis.
Barro: Economic Growth in a Cross Section of Countries
RJ Barro, “Economic Growth in a Cross Section of Countries,” NBER Working Paper (1991).
"For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial...level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions" (407).
"The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407).
The effects of human capital are varied, but many have posited that the rate of return increases after a certain point of investment. "As an example, the return to some kinds of ability, such as talent in communications, is higher if other people are also more able. In this setting, increases in the quantity of human capital per person tend to lead to higher rates of investment in human and physical capital, and hence, to higher per capita growth. A supporting force is that more human capital per person reduces fertility rates, because human capital is more productive in producing goods and additional human capital rather than more children" (409).
"For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial...level of real per capital GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions" (407).
"The main element behind the convergence result in neoclassical growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology" (407).
The effects of human capital are varied, but many have posited that the rate of return increases after a certain point of investment. "As an example, the return to some kinds of ability, such as talent in communications, is higher if other people are also more able. In this setting, increases in the quantity of human capital per person tend to lead to higher rates of investment in human and physical capital, and hence, to higher per capita growth. A supporting force is that more human capital per person reduces fertility rates, because human capital is more productive in producing goods and additional human capital rather than more children" (409).
Mankiw, Romer and Weil: A Contribution to the Empirics of Economic Growth
NG Mankiw, D Romer, and DN Weil, “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics 107, no. 2 (1992): 407-437.
"This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts" (407).
"This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two variables determine the steady-state level of income per capita. Because saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country" (407).
These authors argue that, on the whole, the Solow model gets it right: when savings are up, income is up; when population growth is up, income is down. However, they also argue that the most basic Solow model left out some important variables that help to define growth: the accumulation of both human capital and physical capital. "First, for any given rate of human capital accumulation, higher saving or lower population growth leads to a higher level of income and thus a higher level of human capital; hence, accumulation of physical capital and population growth have greater impacts on income when accumulation of human capital is taken into account. Second, human-capital accumulation may be correlated with saving rates and population growth rates; this would imply that omitting human-capital accumulation biases the estimated coefficients on saving and population growth" (408).
"It appears that the augmented Solow model provides an almost complete explanation of why some countries are rich and other countries are poor" (408).
The authors then explore the phenomena of convergence, finding that there is little evidence for this and that countries will eventually settle at different steady-states of personal income relative to the amount of physical capital, savings and human capital.
"Overall, the findings reported in this paper cast doubt on the recent trend among economists to dismiss the Solow growth model in favor of endogenous-growth models that assume constant or increasing returns to scale in capital...This conclusion does not imply, however, that the Solow model is a complete theory of growth: one would like also to understand the determinants of saving, population growth, and worldwide technological change, all of which the Solow model treats as exogenous. Nor does it imply that endogenous-growth models are not important, for they may provide the right explanation of worldwide technological change. Our conclusion does imply, whoever, that the Solow model gives the right answers to the questions it is designed to address" (409).
They then work out their equations.
"Over the past few years economists studying growth have turned increasingly to endogenous-growth models. These models are characterized by the assumption of non-decreasing returns to the set of reproducible factors of production...Among the implications of this assumption are that countries that save more grow faster indefinitely and that countries need not converge in income per capita, even if they have the same preferences and technology" (421).
They then explore the concept of convergence, and respond to critics, specifically Barro, who argues that the Solow model emphasizes a convergence of income per capita, and that this does not relate directly to the evidence. These authors claim that the Solow model does not, in fact, predict convergence, but is explicit in its analysis that different countries will reach different steady-states.
"We have suggested that international differences in income per capita are best understood using an augmented Solow growth model" (432).
"This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts" (407).
"This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two variables determine the steady-state level of income per capita. Because saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country" (407).
These authors argue that, on the whole, the Solow model gets it right: when savings are up, income is up; when population growth is up, income is down. However, they also argue that the most basic Solow model left out some important variables that help to define growth: the accumulation of both human capital and physical capital. "First, for any given rate of human capital accumulation, higher saving or lower population growth leads to a higher level of income and thus a higher level of human capital; hence, accumulation of physical capital and population growth have greater impacts on income when accumulation of human capital is taken into account. Second, human-capital accumulation may be correlated with saving rates and population growth rates; this would imply that omitting human-capital accumulation biases the estimated coefficients on saving and population growth" (408).
"It appears that the augmented Solow model provides an almost complete explanation of why some countries are rich and other countries are poor" (408).
The authors then explore the phenomena of convergence, finding that there is little evidence for this and that countries will eventually settle at different steady-states of personal income relative to the amount of physical capital, savings and human capital.
"Overall, the findings reported in this paper cast doubt on the recent trend among economists to dismiss the Solow growth model in favor of endogenous-growth models that assume constant or increasing returns to scale in capital...This conclusion does not imply, however, that the Solow model is a complete theory of growth: one would like also to understand the determinants of saving, population growth, and worldwide technological change, all of which the Solow model treats as exogenous. Nor does it imply that endogenous-growth models are not important, for they may provide the right explanation of worldwide technological change. Our conclusion does imply, whoever, that the Solow model gives the right answers to the questions it is designed to address" (409).
They then work out their equations.
"Over the past few years economists studying growth have turned increasingly to endogenous-growth models. These models are characterized by the assumption of non-decreasing returns to the set of reproducible factors of production...Among the implications of this assumption are that countries that save more grow faster indefinitely and that countries need not converge in income per capita, even if they have the same preferences and technology" (421).
They then explore the concept of convergence, and respond to critics, specifically Barro, who argues that the Solow model emphasizes a convergence of income per capita, and that this does not relate directly to the evidence. These authors claim that the Solow model does not, in fact, predict convergence, but is explicit in its analysis that different countries will reach different steady-states.
"We have suggested that international differences in income per capita are best understood using an augmented Solow growth model" (432).
Thursday, November 13, 2008
Solow: A Contribution to the Theory of Economic Growth
RM Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (1956): 65-94.
Solow begins by explaining that all theory relies on sets of assumptions, and that there are different kinds of assumptions that one can make based on the degree to which they will affect the outcome of the theory. Theories that make assumptions that directly drive the outputs of the theories must clearly articulate why those assumptions were put forth. The author makes an argument about the assumptions underlying the Harrod-Domar model of economic growth.
This core assumption of the Harrod-Domar model is that of fixed proportions in production. "There is no possibility of substituting labor for capital in production" (65). This assumption leads to what Solow terms a "knife-edge" balance, where if one of the "key parameters" is thrown off slightly, than negative consequences will arise for an economic system. "A remarkable characteristic of the Harrod-Domar model is that it consistently studies long-run problems with the usual short-run tools...The bulk of this paper is devoted to a model of long-run growth which accepts all of the Harrod-Domar assumptions except that of fixed proportions. Instead I suppose that the single composite commodity is produced by labor and capital under the standard neoclassical conditions" (66).
"The basic conclusion of this analysis is that, when production takes place under the usual neoclassical conditions of variable proportions and constant returns to scale, no simple opposition between natural and warranted rates of growth is possible. There may not be--in fact in the case of the Cobb-Douglas function there never can be--any knife-edge. The system can adjust to any given rate of growth of the labor force, and eventually approach a state of steady proportional expansion" (73).
Explores examples of Harrod-Domar models, Cobb-Douglas models, and what I assume can be called Solow models of growth.
"Everything above is the neoclassical side of the coin. Most especially it is full employment economics--in the dual aspect of equilibrium condition and frictionless, competitive, causal system. All the difficulties and rigidities which go into modern Keynesian income analysis have been shunted aside. It is not my contention that these problems don't exist, nor that they are of no significance in the long run. My purpose was to examine what might be called the tightrope view of economic growth and to see where more flexible assumptions about production would lead a simple model" (91).
Solow begins by explaining that all theory relies on sets of assumptions, and that there are different kinds of assumptions that one can make based on the degree to which they will affect the outcome of the theory. Theories that make assumptions that directly drive the outputs of the theories must clearly articulate why those assumptions were put forth. The author makes an argument about the assumptions underlying the Harrod-Domar model of economic growth.
This core assumption of the Harrod-Domar model is that of fixed proportions in production. "There is no possibility of substituting labor for capital in production" (65). This assumption leads to what Solow terms a "knife-edge" balance, where if one of the "key parameters" is thrown off slightly, than negative consequences will arise for an economic system. "A remarkable characteristic of the Harrod-Domar model is that it consistently studies long-run problems with the usual short-run tools...The bulk of this paper is devoted to a model of long-run growth which accepts all of the Harrod-Domar assumptions except that of fixed proportions. Instead I suppose that the single composite commodity is produced by labor and capital under the standard neoclassical conditions" (66).
"The basic conclusion of this analysis is that, when production takes place under the usual neoclassical conditions of variable proportions and constant returns to scale, no simple opposition between natural and warranted rates of growth is possible. There may not be--in fact in the case of the Cobb-Douglas function there never can be--any knife-edge. The system can adjust to any given rate of growth of the labor force, and eventually approach a state of steady proportional expansion" (73).
Explores examples of Harrod-Domar models, Cobb-Douglas models, and what I assume can be called Solow models of growth.
"Everything above is the neoclassical side of the coin. Most especially it is full employment economics--in the dual aspect of equilibrium condition and frictionless, competitive, causal system. All the difficulties and rigidities which go into modern Keynesian income analysis have been shunted aside. It is not my contention that these problems don't exist, nor that they are of no significance in the long run. My purpose was to examine what might be called the tightrope view of economic growth and to see where more flexible assumptions about production would lead a simple model" (91).
Friday, October 31, 2008
Cameron: Distributional Coalitions and Other Sources of Economic Stagnation: On Olson's Rise and Decline of Nations
Cameron, D., 1988. Distributional Coalitions and Other Sources of Economic Stagnation: On Olson’s Rise and Decline of Nations. International Organization, 42(4), 561-603.
“During the last decade, the study of politics has been infused with a concern with economics” (561). “Yet, in spite of the proliferation of scholarship concerned with American, comparative, and international political economy, and important lacuna exists. Apparently accepting a disciplinary division of labor and willing to leave the subject to economists, most political scientists have neglected the systematic, theoretical and empirical analysis of why growth rates differ among nations and, within nations, over time. As a result, economic growth has been and remains, as Whiteley notes, ‘one of the most neglected topics in the emerging literature of modern political economy;” (561).
“In the first section, I question some of the major assumptions upon which Olson builds his ‘logic’ of collective action. The second section considers each of the nine ‘implications’ drawn from that ‘logic’ that Olson describes…Particular attention is given to those implications which are essential to an explanation of variations across time and space in rates of economic growth. In the third section, I review some of the empirical evidence that Olson claims supports his theory, especially his application of the theory to account for differences in growth rates among five nations…in the post-World War II era” (563).
Part of the claim is that, along with most literature that focuses on economic growth, Olson identifies the source of that growth domestically, while Cameron claims that it has much to do with the position of the country in the world economy, and the policy responses of countries in response to the relative of the country and the global economy.
“…Olson’s analysis of collective behavior rests on an apparent paradox: individuals, firms, or other units sharing a common interest that can be furthered by working together will decide rationally not to act as a group” (564).
For one thing, Olson’s analysis relies too heavily on a simplistic notion of society divided into groups, and these groups representing some kind of core societal function. Also, it also ignores the possibility of groups acting in the interest of other groups, or at least not acting in their own interest with rational maximizing being the predominant qualification. A second assumption of Olson’s analysis is that groups are able to achieve their objectives based entirely on whether or not they are internally structured to achieve these goals. There is not an emphasis on the relationship between groups, or of other more structural conditions that would hamper group action.
However, for Cameron, the weakest assumption of Olson can be drawn back to neoclassical economic assumptions: “Instead, the weakest assumption behind the ‘logic’ involves the nature of the costs and benefits obtained from group action. The logic is grounded, like the neo-classical economic theory from which It derives, on the assumptions that: 1) the relevant unit of analysis is the individual, 2) the costs and benefits of collective action are divisible and capable of being allocated among individuals, and 3) that individuals can, and do (assuming some form of rationality), determine the formation and behavior of groups through their calculations of cost and benefit” (566).
Cameron then goes through each of the 9 separate conclusions that Olson draws from his original logic and attempts to show how they are wrong-headed. I will not detail them here, though they represent a bulk of this article. Specifically, Cameron picks apart Olson’s account of different rates of growth of five key industrialized countries. Cameron concludes that the myopic focus on internal descriptions of different patterns of economic growth should be supplemented with an external, international perspective on different patterns of economic growth. “…I suggested that rather than reflecting only such internal, domestic characteristics as the structure and behavior of distributional collations, the variation among nations in growth rates may reflect the impact of external, international factors. In particular, the discussion of the German, Japanese, and British experiences suggested that a nation’s rate of economic growth may have less to do with the purely domestic social-organization characteristics and activities considered by Olson than with the nation’s historic an devolving position in the world economy, the policy responses through which government attempts to maintain or improve that position, and, finally, the constraints on (or, conversely, opportunities for) growth-orientated domestic economic policy that derive from that position” (603).
“During the last decade, the study of politics has been infused with a concern with economics” (561). “Yet, in spite of the proliferation of scholarship concerned with American, comparative, and international political economy, and important lacuna exists. Apparently accepting a disciplinary division of labor and willing to leave the subject to economists, most political scientists have neglected the systematic, theoretical and empirical analysis of why growth rates differ among nations and, within nations, over time. As a result, economic growth has been and remains, as Whiteley notes, ‘one of the most neglected topics in the emerging literature of modern political economy;” (561).
“In the first section, I question some of the major assumptions upon which Olson builds his ‘logic’ of collective action. The second section considers each of the nine ‘implications’ drawn from that ‘logic’ that Olson describes…Particular attention is given to those implications which are essential to an explanation of variations across time and space in rates of economic growth. In the third section, I review some of the empirical evidence that Olson claims supports his theory, especially his application of the theory to account for differences in growth rates among five nations…in the post-World War II era” (563).
Part of the claim is that, along with most literature that focuses on economic growth, Olson identifies the source of that growth domestically, while Cameron claims that it has much to do with the position of the country in the world economy, and the policy responses of countries in response to the relative of the country and the global economy.
“…Olson’s analysis of collective behavior rests on an apparent paradox: individuals, firms, or other units sharing a common interest that can be furthered by working together will decide rationally not to act as a group” (564).
For one thing, Olson’s analysis relies too heavily on a simplistic notion of society divided into groups, and these groups representing some kind of core societal function. Also, it also ignores the possibility of groups acting in the interest of other groups, or at least not acting in their own interest with rational maximizing being the predominant qualification. A second assumption of Olson’s analysis is that groups are able to achieve their objectives based entirely on whether or not they are internally structured to achieve these goals. There is not an emphasis on the relationship between groups, or of other more structural conditions that would hamper group action.
However, for Cameron, the weakest assumption of Olson can be drawn back to neoclassical economic assumptions: “Instead, the weakest assumption behind the ‘logic’ involves the nature of the costs and benefits obtained from group action. The logic is grounded, like the neo-classical economic theory from which It derives, on the assumptions that: 1) the relevant unit of analysis is the individual, 2) the costs and benefits of collective action are divisible and capable of being allocated among individuals, and 3) that individuals can, and do (assuming some form of rationality), determine the formation and behavior of groups through their calculations of cost and benefit” (566).
Cameron then goes through each of the 9 separate conclusions that Olson draws from his original logic and attempts to show how they are wrong-headed. I will not detail them here, though they represent a bulk of this article. Specifically, Cameron picks apart Olson’s account of different rates of growth of five key industrialized countries. Cameron concludes that the myopic focus on internal descriptions of different patterns of economic growth should be supplemented with an external, international perspective on different patterns of economic growth. “…I suggested that rather than reflecting only such internal, domestic characteristics as the structure and behavior of distributional collations, the variation among nations in growth rates may reflect the impact of external, international factors. In particular, the discussion of the German, Japanese, and British experiences suggested that a nation’s rate of economic growth may have less to do with the purely domestic social-organization characteristics and activities considered by Olson than with the nation’s historic an devolving position in the world economy, the policy responses through which government attempts to maintain or improve that position, and, finally, the constraints on (or, conversely, opportunities for) growth-orientated domestic economic policy that derive from that position” (603).
Monday, October 27, 2008
Pasinetti: Structural Change and Economic Growth
Pasinetti, L., Structural change and economic growth, Cambridge University Press.
Pasenetti beings his book by exploring a broad overview of economic theory historically. At its broadest, he distinguished between trade and industrialization in the development of the science of economics. Initially, there was trade, which is a relatively static phenomena. Then, out of the growth that trade created, the more dynamic process of industrialization took place.
Merchantilism is the school of economic thought that believes that countries must trade with other countries, but that exports should be larger than imports. Trade is a weapon to be used to strengthen nations.
Physiocracy, alternatively, explored economic production from the perspective that promoted the idea that agricultural production was the core of all economic production. This school of thought also produced the first table representing economic inputs and outputs (Quesnay).
Smith and Ricardo represent the core of the classical approach to understanding economic growth. Smith paints a picture of growth that is highly determined by different levels of technology and productivity. Ricardo explores two different kinds of goods, those whose value is determined solely (or mostly) by their scarcity, and those whose value can fluctuate greatly based on productivity.
Marginal economic theory emerged from criticisms of classical economic theory: the later didn’t take into consideration demand side economic issues. These theories, most notably, those of Walras and equilibrium seeking, price driven models, stood as a contrast to radical takes on classical economic systems of production. For example, economists could rely in a Walsrasian analysis of the economy as it took production of the equation, and thus castrated Marxist analysis.
Marginal production theory was another transition that occurred in the late 19th century. This theory brought together all of the factors of the production process and produced relative production curves (in contrast to utility curves) to demonstrate the relative productive capabilities of different allotments of factors of production in an economy to overall production.
From here on, there have been many different foci of economic theory, though Pasenetti argues that the focus on scarcity should be less heavily emphasized because there has been a structural change in productive capabilities.
Pasenetti beings his book by exploring a broad overview of economic theory historically. At its broadest, he distinguished between trade and industrialization in the development of the science of economics. Initially, there was trade, which is a relatively static phenomena. Then, out of the growth that trade created, the more dynamic process of industrialization took place.
Merchantilism is the school of economic thought that believes that countries must trade with other countries, but that exports should be larger than imports. Trade is a weapon to be used to strengthen nations.
Physiocracy, alternatively, explored economic production from the perspective that promoted the idea that agricultural production was the core of all economic production. This school of thought also produced the first table representing economic inputs and outputs (Quesnay).
Smith and Ricardo represent the core of the classical approach to understanding economic growth. Smith paints a picture of growth that is highly determined by different levels of technology and productivity. Ricardo explores two different kinds of goods, those whose value is determined solely (or mostly) by their scarcity, and those whose value can fluctuate greatly based on productivity.
Marginal economic theory emerged from criticisms of classical economic theory: the later didn’t take into consideration demand side economic issues. These theories, most notably, those of Walras and equilibrium seeking, price driven models, stood as a contrast to radical takes on classical economic systems of production. For example, economists could rely in a Walsrasian analysis of the economy as it took production of the equation, and thus castrated Marxist analysis.
Marginal production theory was another transition that occurred in the late 19th century. This theory brought together all of the factors of the production process and produced relative production curves (in contrast to utility curves) to demonstrate the relative productive capabilities of different allotments of factors of production in an economy to overall production.
From here on, there have been many different foci of economic theory, though Pasenetti argues that the focus on scarcity should be less heavily emphasized because there has been a structural change in productive capabilities.
Thursday, October 23, 2008
Abramovitz: Catching Up, Forging Ahead and Falling Behind
Abramovitz, M., 1986. Catching Up, Forging Ahead, and Falling Behind. Journal of Economic History, 46(2), 385-406.
“A widely entertained hypothesis holds that, in comparisons among countries, productivity growth rates tend to vary inversely with productivity levels” (385). Convergence happened most clearly in the quarter century following WWII. This article puts forth a hypothesis that convergence takes place because of catch-up phenomena.
The story of convergence is quite a simple one, especially after WWII: The US had amassed such a degree of technology that was not available in other countries and, once the peace was established, other nations were able to achieve the gains from that technology without having to go up the steep learning curve of an initial adopter. When you are further back in your “technological age” (which correlates to the actual age of the technology chronologically), you have more potential to catch up. As you get closer to the hegemon, this growth slows.
Four extensions to the basic idea of technological convergence are listed:
1.) “The same technological opportunity that permits rapid progress by modernization encourages rapid growth of the capital stock parly because of the returns to modernization itself…So—besides a reduction of technological age towards chronological age, the rate of rise of the capital-labor ratio tends to be higher”
2.) “Growth of productivity also makes for increase in aggregate output”
3.) “Backwardness carries an opportunity for modernization in disembodied, as well as in embodied, technology”
4.) “If countries at relatively low levels of industrialization contain large numbers of redundant workers in farming and petty trade, as is normally the case, there is also an opportunity for productivity growth by improving the allocation of labor” (387).
Countries who have the greatest opportunity to gain from technological convergence are those that are “socially advanced” but technologically backwards.
Restatement of hypothesis: “Countries that are technologically backward have a potentiality for generating growth more rapid than that of more advanced countries, providing their social capabilities are sufficiently developed to permit successful exploitation of technologies already employed by the technological leaders. The pace at which potential for catch-up is actually realized in a particular period depends on factors limiting the diffusion of knowledge, the rate of structural change, the accumulation of capital, and the expansion of demand. The process of catching up tends to be self-limiting, but the strength of the tendency may be weakened or overcome, at least for limited periods, by advantages connected with the convergence of production patterns as followers advance towards leaders or by an endogenous enlargement of social capabilities” (391).
Abramovits then explores historical data related to the phenomena of catching up.
Catching-up is a phenomena that occurs when some are behind technologically but where they have achieved sufficient social capital to make the adoption of new technologies feasible.
“A widely entertained hypothesis holds that, in comparisons among countries, productivity growth rates tend to vary inversely with productivity levels” (385). Convergence happened most clearly in the quarter century following WWII. This article puts forth a hypothesis that convergence takes place because of catch-up phenomena.
The story of convergence is quite a simple one, especially after WWII: The US had amassed such a degree of technology that was not available in other countries and, once the peace was established, other nations were able to achieve the gains from that technology without having to go up the steep learning curve of an initial adopter. When you are further back in your “technological age” (which correlates to the actual age of the technology chronologically), you have more potential to catch up. As you get closer to the hegemon, this growth slows.
Four extensions to the basic idea of technological convergence are listed:
1.) “The same technological opportunity that permits rapid progress by modernization encourages rapid growth of the capital stock parly because of the returns to modernization itself…So—besides a reduction of technological age towards chronological age, the rate of rise of the capital-labor ratio tends to be higher”
2.) “Growth of productivity also makes for increase in aggregate output”
3.) “Backwardness carries an opportunity for modernization in disembodied, as well as in embodied, technology”
4.) “If countries at relatively low levels of industrialization contain large numbers of redundant workers in farming and petty trade, as is normally the case, there is also an opportunity for productivity growth by improving the allocation of labor” (387).
Countries who have the greatest opportunity to gain from technological convergence are those that are “socially advanced” but technologically backwards.
Restatement of hypothesis: “Countries that are technologically backward have a potentiality for generating growth more rapid than that of more advanced countries, providing their social capabilities are sufficiently developed to permit successful exploitation of technologies already employed by the technological leaders. The pace at which potential for catch-up is actually realized in a particular period depends on factors limiting the diffusion of knowledge, the rate of structural change, the accumulation of capital, and the expansion of demand. The process of catching up tends to be self-limiting, but the strength of the tendency may be weakened or overcome, at least for limited periods, by advantages connected with the convergence of production patterns as followers advance towards leaders or by an endogenous enlargement of social capabilities” (391).
Abramovits then explores historical data related to the phenomena of catching up.
Catching-up is a phenomena that occurs when some are behind technologically but where they have achieved sufficient social capital to make the adoption of new technologies feasible.
Friday, January 4, 2008
Gerschenkron: Economic Backwardness in Historical Perspective (Chapter 1)
Gerschenkron, Alexander. (1962). Economic backwardness in historical perspective, a book of essays.
A historical approach to understanding how countries develop written in 1962. There is an explicit call to modesty, and a claim that, “the search is no longer for a determination of the course of human events as ubiquitou8s and invariant as that of the course of the planets” (5). Much of this chapter reads like E.H. Carr.
Many of the characteristics of countries that move suffering from “economic backwardness” to development (should probably be “economic forwardness”) can be mapped following a similar path. However, while these developments are similar, they are not altogether the same. Thus, with the advent of new technologies and advancements in economic ideology, the developments of these less well-off countries can change.
Developments proceeded first in
Additionally, as these three countries developed, the relationship amongst the abovementioned institutions also changed. An example of German banking related to industry is given. Eventually, banking and industry move beyond a “master/slave” relationship and towards something more equal.
Ending this chapter, we look at ideology. The rise of Saint-Simonian ideas is examined. These ideas are explicitly socialist, but they eventually are used to bolster a capitalist system of production. The author notes that development occurs in such strange ways. “Capitalist industrialization under the auspices of socialist ideologies may be, after all, less surprising in a phenomenon than would appear at first sight” (25). I would add that the same may be argued from the opposite perspective.
Subscribe to:
Posts (Atom)
