Economics 216: The Macroeconomics of Development

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Economics 216The Macroeconomics of Development

• Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.)
• Kwoh-Ting Li Professor of Economic Development
• Department of Economics
• Stanford University
• Stanford, CA 94305-6072, U.S.A.
• Spring 2000-2001
• Email ljlau_at_stanford.edu WebPages
  http//www.stanford.edu/ljlau

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Review

• Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.)
• Kwoh-Ting Li Professor of Economic Development
• Department of Economics
• Stanford University
• Stanford, CA 94305-6072, U.S.A.
• Spring 2000-2001
• Email ljlau_at_stanford.edu WebPages
  http//www.stanford.edu/ljlau

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The Historical Experience of Economic Development

• The characteristics of economic development
• Demographic transition
• Decline in mortality and morbidity
• Rise in life expectancy
• Decline in the fertility and birth rates
• Sustained growth in real output per capita
• Industrialization
• Urbanization
• Sustained rise in literacy and educational
  achievement
• An equitable distribution of income

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The Sources of Economic Growth

• Measured Inputs
• Tangible Capital
• Labor
• Human Capital
• RD Capital
• Technical Progress
• Intangible Capital (Human Capital, RD Capital,
  Goodwill (Advertising and Market Development),
  Information System, Software, etc.)
• Other Omitted and Unmeasured Inputs (Land,
  Natural Resources, Water Resources, Environment,
  etc.)
• Improvements in Technical and Allocative
  Efficiency
• The traditional growth-accounting formula
• The sources of economic growth in developed and
  developing countries

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Cross-Country Growth Regressions

• Concepts of convergence
• Absolute convergence of real GDP per capita
• Conditional convergence of real GDP per capita
• Convergence in technology

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Models of Economic Development

• Two-Gap Models
• Savings gap
• Foreign exchange gap
• Two-Sector Models
• Dual Economy Models with and without Surplus Labor

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Savings and Capital Accumulation

• The relationship among savings rate, capital
  accumulation, and the level and rate of growth of
  real GDP per capita
• Determinants of savings
• Savings and investment

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The Role of Money and Finance

• The Quantity Theory of Money MVPT
• Inflation and money supply
• The velocity of circulation of money and economic
  development
• The role of financial intermediation
• Evolution of long-term capital markets

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Stabilization in Closed and Open Economies

• Insufficient aggregate demand
• Excess aggregate demand
• Inflation and taxation
• Current and capital account balance
• Exchange rate policy
• The causes of the East Asian currency crisis
• Lessons from the East Asian currency crisis

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Development Policies and Strategies

• Big Push versus Balanced Growth
• Export Promotion versus Import Substitution
• The infant industry argument
• Central Planning versus Market
• The role of foreign capital

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Human Capital, Intangible Capital, and
Infrastructural Capital

• The distinction between social and private rates
  of return
• Appropriability
• Network externalities
• Justification for public investments and/or
  subsidies

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Endogenous Economic Growth

• Technical progress as the outcome of purposive
  activity
• Motivation is possibility of monopoly profit
• Technological increasing returns to scale and
  market increasing returns to scale
• Increasing or constant returns to knowledge
  capital at the microeconomic level is neither
  necessary nor sufficient for increasing returns
  to scale at the macroeconomic level in knowledge
  capital, tangible capital and labor

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Numerical General Equilibrium Models

• General Equilibrium Models of the Economy
• Applied (Computable) General Equilibrium (CGE)
  Models
• Determination of the Parameters
• Calibration versus Econometric Estimation
• Solution
• Welfare Analysis
• Sensitivity Analysis