Economic Growth

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Economic Growth

• Depends on growth of inputs, and ultimately on
  population and MFP growth
• K determined endogenously MFP exogenous to K
• L determined endogenously Population growth, K,
  MFP exogenous to L
• MFP and Population growth determine L and K
  growth and therefore determine GDP growth

2
Per capita GDP growth

• Malthus pop growth will reduce welfare
• Assumption of diminishing returns implies GDP/L
  falls as L rises
• Carlisle et al therefore dubbed economics the
  dismal science

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(No Transcript)
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GNP Gross National Product(production by
citizens, wherever they may be living or working)
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International comparison of per capita GDP

• May differ if population growth differs
• May differ temporarily if it takes time for
  technology to be adopted
• May differ if market failures

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Labor force participation and technological
progress

• Technological progress over time
• Rising wages, but unlike graph, no increase in L
  as a share of population
• (Graph assumes Ls constant for simplicity)
• Suggests Ls vertical over long periods of time?

w/p
Ls
w1
Ld1
L
L1
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Labor force participation and technological
progress
Ls
w/p

• Labor-supply may be backward-bending
• Average real wage may currently be in a vertical
  segment of the Ls curve

(w/p)1940
Ld(1940)
L1940
L
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Measuring MFP

• Most important input
• Unobservable
• Measured as a residual

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Problems measuring MFP

• Mis-measurement GDP, L, or K
• Mis-specification of the model

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MFP theory

• In our model, its exogenous
• Other models
• Boosted by venture capitalism
• Boosted by R and D subsidies and tax breaks
• Boosted by patent protection
• Boosted by increased education of labor force