Economic growth ii technology empirics and policy l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 35

Economic Growth II: Technology, Empirics, and Policy PowerPoint PPT Presentation


  • 176 Views
  • Uploaded on
  • Presentation posted in: General

Economic Growth II: Technology, Empirics, and Policy. Chapter 9 of Macroeconomics , 8 th edition, by N. Gregory Mankiw ECO62 Udayan Roy. Recap: Solow-Swan, Ch. 7. L and K are used to produce a final good Y = F ( K , L )

Download Presentation

Economic Growth II: Technology, Empirics, and Policy

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Economic growth ii technology empirics and policy l.jpg

Economic Growth II: Technology, Empirics, and Policy

Chapter 9 of Macroeconomics, 8thedition, by N. Gregory Mankiw

ECO62UdayanRoy


Recap solow swan ch 7 l.jpg

Recap: Solow-Swan, Ch. 7

  • L and K are used to produce a final good Y = F(K, L)

  • k = K/L and y = Y/L = f(k) are per worker capital and output

  • The population is P, but a fraction u is not engaged in the production of the final good. Therefore, L = (1 – u)P.

  • Both P and L grow at the rate n.

  • A fraction s of Y is saved and added to capital

  • A fraction δ of K depreciates (wears out)


Recap solow swan ch 8 l.jpg

Recap: Solow-Swan, Ch. 8

  • In the long run, the economy reaches a steady state, with constant k and y


Recap solow swan ch 84 l.jpg

Recap: Solow-Swan, Ch. 8

  • In the long run, the economy reaches a steady state, with constant k and y

  • Like the per-workervariables, k and y, per-capita capital and output are also constant in the long run

  • Total capital (K) and total output (Y) both increase at the rate n, which is the rate of growth of both the number of workers (L) and the population (P)


Recap solow swan ch 85 l.jpg

Recap: Solow-Swan, Ch. 8


The sad lesson of solow swan l.jpg

The sad lesson of Solow-Swan

  • It is an undeniable fact that our standards of living increase over time

  • Yet, Solow-Swan cannot explain this! Why?

  • Solow-Swan relies on capital accumulation as the only means of progress

  • Therefore, the model’s failure to show economic progress indicates that we must introduce some means of progress other than capital accumulation


Technological progress l.jpg

Technological Progress

  • Maybe Solow-Swan fails to show economic progress because there is no technological progress in it

  • We need to create a theory with technological progress

  • But how?


Technological progress8 l.jpg

Technological Progress

  • A simple way to introduce technological progress into the Solow-Swan model is to think of technological progress as increases in our ability to multitask


Technological progress9 l.jpg

Technological Progress

  • Imagine that both population and the number of workers are constant but that steady increases in the workers’ ability to multitask creates an economy that is equivalent to the Solow-Swan economy with steadily increasing population


Technological progress10 l.jpg

Technological Progress

  • In such an economy, total output would be increasing—exactly as in the Solow-Swan economy with steady population growth—but without population growth

  • That is, under multitasking technological progress, per capita and per worker output would be steadily increasing

  • In this way, a simple re-interpretation of the Solow-Swan economy gives us what we were looking for—steadily increasing income per worker


Efficiency of labor l.jpg

Efficiency of Labor

  • Specifically, section 9−1 defines a new variable

    • E is the efficiency of labor

    • Specify some date in the past, say 1984, and arbitrarily set E = 1 for 1984.

    • Let’s say that technological progress has enabled each worker of 2011 to do the work of 10 workers of 1984.

    • This implies that E = 10 in 2011.


Efficiency of labor12 l.jpg

Efficiency of Labor

  • The old production function F(K,L) no longer applies to both 1984 and 2011

  • Suppose K = 4 in both 1984 and 2011

  • Suppose L = 10 in 1984 and L = 1 in 2011

  • The old production function F(K,L) will say that output is larger in 1984

  • But we know that output is the same in both years because just one worker in 2011 can do the work of 10 workers of 1984

  • We need a new production function: F(K, E✕ L)


Y f k e l l.jpg

Y = F(K, E✕ L)

  • In other words, although the number of human workers is 10 in 1984 and 1 in 2011, the effective number of workers is 10 in both years,

  • and that’s what matters in determining the level of output

  • The effective number of workers is E✕ L


Efficiency of labor14 l.jpg

Efficiency of Labor

  • Assumption: the efficiency of labor grows at the constant and exogenous rate g


Production l.jpg

Production

  • As the production of the final good no longer depends only on the number of workers, but instead depends on the effective number of workers, …

  • … we replace the production function Y = F(K, L) by the new production function Y = F(K, E✕ L)


From per worker to per effective worker l.jpg

From “per worker” to “per effective worker”

  • Similarly, we will now redefine k, which used to be capital per worker (K/L), as capital per effective worker: k = K/(E✕ L)

  • Likewise, we will now redefine y, which used to be output per worker (Y/L), as output per effective worker: y = Y/(E✕ L)


From per worker to per effective worker17 l.jpg

From “per worker” to “per effective worker”

  • As a result of the redefinition of k and y, we still have y = f(k), except that the definitions of y and k are now in “per effective worker” form

  • sy = sf(k), is now saving (and investment) per effective worker

  • Only the growth rate of effective labor is slightly different


From per worker to per effective worker18 l.jpg

From “per worker” to “per effective worker”

  • In Chapter 8, what mattered in production was L, the number of workers, and the growth rate of L was n

  • Now, however, what matters in production is E✕ L, the effective number of workers, and the growth rate of E✕ L = growth rate of E + growth rate of L = g + n


From per worker to per effective worker19 l.jpg

From “per worker” to “per effective worker”

  • Recall from Chapter 8 that the break-even investment per worker was (δ + n)k

  • This will have to be replaced by the break-even investment per effective worker

  • We can do this by redefining k as capital per effective worker (which we have already done) and by replacing n by g + n

  • Therefore, break-even investment per effective worker is now (δ + n + g)k


Dynamics algebra l.jpg

Dynamics: algebra

Ch. 8 No technological change

Ch. 9 Technological Progress


Dynamics graph l.jpg

Dynamics: graph

  • As in Ch. 8, in the long run, k and y reach a steady state at k = k* and y = y* = f(k*)


Describing the steady state l.jpg

Describing the Steady State

  • We just saw that k is constant in the steady state

  • That is, k = K/(E✕ L) is constant

  • Therefore, in terms of growth rates, kg = Kg – (Eg + Lg) = Kg – (g + n) = 0

  • Therefore, the economy’s total stock of capital grows at the rate Kg = g + n


Describing the steady state23 l.jpg

Describing the Steady State

  • Capital per worker (K/L) grows at the rate Kg –Lg = g + n – n = g

  • Therefore, the per-worker capital stock, which was constant in Chapter 8, grows at the rate g

  • As each worker’s ability to multitask increases at the rate g, the capital used by a worker also increases at that rate


Describing the steady state24 l.jpg

Describing the Steady State

  • y = f(k) is constant in the steady state

  • That is, y = Y/(E✕ L) is constant

  • Therefore, in terms of growth rates, yg = Yg – (Eg + Lg) = Yg – (g + n) = 0

  • Therefore, the economy’s total output grows at the rate Yg = g + n

    • Recall that this is also the growth rate of the total stock of capital, K.


Describing the steady state25 l.jpg

Describing the Steady State

  • Output per worker (Y/L) grows at the rate Yg – Lg = g + n – n = g

  • Therefore, the per-worker output, which was constant in Chapter 8, grows at the rate g

    • Recall that this is also the growth rate of per-worker capital, K/L.


Progress finally l.jpg

Progress, finally!

  • We have just seen that if we introduce technological progress in the Solow-Swan theory of long-run growth, then in the economy’s steady state

    • Per-worker output (Y/L) increases at the rate g, which is the rate of technological progress

  • This is a major triumph for the Solow-Swan theory


Solow swan steady state l.jpg

Solow-Swan Steady State

  • Table 9.1 Steady-State Growth Rates in the Solow Model With Technological Progress


Solow swan steady state28 l.jpg

Solow-Swan Steady State

  • Remember from Chapter 8 that, when the production function follows the Cobb-Douglas form, the steady state value of k = k* was given by the formula

  • Now the formula changes to


Technological progress where does it come from l.jpg

Technological Progress: where does it come from????

  • But a puzzle remains …

  • So far, the rate of technological progress, g, has been exogenous

  • We need to ask, What does g depend on?

  • We need to make g endogenous


Endogenous technological progress l.jpg

Endogenous Technological Progress

  • Remember that in Chapter 8 we had distinguished between the population (P) and the number of workers (L)

  • We had defined the exogenous variable u as the fraction of the population that does not produce the final good

    • Therefore, we had L = (1 – u)P or L/P= 1 – u

  • In Ch. 8 we had interpreted u as the long-run unemployment rate

  • Now, we’ll reinterpret u as the fraction of the population that does scientific research


Endogenous technological progress31 l.jpg

Endogenous Technological Progress

  • Once u is seen as the fraction of the population that is engaged in scientific research, it makes sense to assume that …

  • Assumption: the rate of technological progress increases if and only if u increases

  • This assumption is represented by the technology function g(u)

    • Example: g(u) = g0 + guu


Endogenous technological progress32 l.jpg

Endogenous Technological Progress

  • We now have a theory that gives an answer to the following question: Why is growth in living standards slow in some cases and fast in others?

  • Growth in per-worker output is fast when u is high.

  • That is, our standards of living grow rapidly when we invest more heavily in scientific research


Productivity slowdown l.jpg

Productivity Slowdown

  • There was a worldwide slowdown in economic growth during 1972-1995. Why?


Growth accounting l.jpg

Growth Accounting

  • Table 9.3 Accounting for Economic Growth in the United States


  • Login