Scribd
Upload
32 views8 pages

Endogenous Growth Theories and New Strategies For Development

1. Endogenous growth theories reject the idea that diminishing returns on capital alone determine economic growth, arguing that factors like human capital accumulation, technology development, and institutions also drive sustained growth. 2. Empirical studies found that countries with higher human capital investment, R&D spending, political stability, and more equal distributions of income and land saw faster economic growth, as in many Asian nations. 3. Technical efficiency measures how effectively an economy uses its endowments of human capital, physical capital, natural resources, knowledge, and other factors of production to generate output.

Uploaded by

hendraxyzxyz
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
32 views8 pages

Endogenous Growth Theories and New Strategies For Development

1. Endogenous growth theories reject the idea that diminishing returns on capital alone determine economic growth, arguing that factors like human capital accumulation, technology development, and institutions also drive sustained growth. 2. Empirical studies found that countries with higher human capital investment, R&D spending, political stability, and more equal distributions of income and land saw faster economic growth, as in many Asian nations. 3. Technical efficiency measures how effectively an economy uses its endowments of human capital, physical capital, natural resources, knowledge, and other factors of production to generate output.

Uploaded by

hendraxyzxyz
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 8

Endogenous Growth Theories and New Strategies for Development

Introduction The Income Convergence Controversy Income Convergence and Path Dependence Endogenous Growth Models Key Inputs To Growth In Endogenous Models Technical Efficiency Change

Introduction (Pg 223 224)


The importance of physical capital accumulation (K variable in the Solow-type aggregate production function equation 4.4) (pg120) has continued to draw attention from development economists Traditional view is that countries need to save and invest so as to accumulate capital stock of the nation Many poor countries would have trouble accumulating this stock of capital Most early development economists believed that domestic saving and investment could be complemented by external financing The level of investment of a country was not believed to be rigidly determined by the countrys own limited ability to save, thus breaking the link between low income and low savings that seemed to constrain the possibilities of the poorest of the less-developed nations to a vicious cycle of poverty

The Income Convergence Controversy


The lingering questions is: Why is it that in different parts of the world there exist different growth rate that do not fit the expectation of developmentalist economists, in even when they injected capital (foreign) into the economies? Over some periods, some regions outperform the highincome economies (e.g. Latin America from 1965 1980) while in other periods they under perform (e.g. Latin America from 1980 - 2001) A case in point is the Sub-Saharan Africa (consistently under-perform) in comparison to East Asia and the Pacific (consistently outperform) From 1980 onward through 2001, the convergence hypothesis is unsupported except in Asia The difference in investment and savings rates and in the aggregate size of the capital stock in different nations do not seem to be able to explain the persistence of the large absolute income differentials which persist between regions Was there any other forces at work besides the level and rate of saving and investment that might be affecting both growth rates and the absolute levels of income?

Income Convergence and Path Convergence


Lloyd Reynolds: He found out that certain countries that have shared characteristics invariably performed better over time in terms of their income per capita growth rates than other economies with different characteristics and they will continue to grow faster even when they have attained a higher level of income and output and the exact opposite is true for the slower performers But the past cannot have a stranglehold of the future! It seemed that some less-developed nations have found the means to jump to a higher standard of living and more rapid economic growth Once started on the road to development the high path a virtuous circle of rewards in the form of continued growth follows; for countries which are poor, being poor puts them on a lowgrowth path, a vicious circle leading them to low incomes in the future The conundrum remains of how nations on a low path might switch to a high path It is important to realize that there exists the possibility to alter the nature of path dependence, for good or bad, via decisions which governments and their citizens take in the present

Endogenous Growth Models


Endogenous growth theories do not assume, nor do they find, physical capital accumulation to be the dominant determining factor in spurring economic growth nor in explaining differences in income levels among nations They threw out the idea of diminishing returns (neoclassical and classical assumptions) as applied to any of the reproducible inputs to production, particularly capital and labor but also technology effectively turning a nations short-run production function into a long-run, dynamic relationship that can be constantly evolving The rate of growth of long-run per capita is not constrained or explained by exogenous technological change In most endogenous growth models, one of the most important factors of production contributing to higher and sustained growth has been found to be both the rate of accumulation and the initial stock of human capital Endogenous models do not predict the convergence of income levels, even among countries with similar rates of saving, investment and population growth rates World Banks study called The East Asian Miracle in 1993 of the high-performance Asian Economies (HPAE) (What are the countries of HPAE? Pg 229) signals this shift of thinking towards endogenous growth model structure for many economists

Key Inputs to Growth in Endogenous Growth Models (Pg 234 237)


Conditional Convergence it depends on each countrys key inputs with all other possible differences between countries on all other variables are assumed away Both micro and macro organizational and institutional forces at work:
Human and Physical Capital The entire macroeconomic environment of the economy Types of human capital accumulated Their effectiveness in using technology and physical capital Other positive externalities associated with the production process The creation of technology that interact to contribute to aggregate growth Human Capital Accumulation Capital Accumulation R&D Expenditures Political Stability Openness to International Trade (Can you think of any other factors?) Pg 237

The World Bank-type endogenous growth format are:

Other Endogenous Factors: Income and Wealth Distribution again


Dani Rodrik: He found out, using the Gini coefficient, that the Asian nations as a group had significantly lower degree of inequality in land and income distribution than most other less-developed countries He did not believe in the miracle of the Asian economies; he had found that the nations had directed their attention and public policies devised to forge the key fundamentals that provided the essential initial conditions conducive to future progress He also found out that social infrastructure such as primary and secondary education and increased equality also contributed to a certain degree (Can you explain the process how does education contribute to the overall economic growth in the HPAEs? Pg 239)

Technical Efficiency Change


Technical Efficiency Change: The measurement of how effective an economy uses the endowments (human capital, physical capital, other resources, knowledge, etc.) We can think of it as a change in the aggregate to technical knowledge at the world level irrespective of whether any particular can make use of it which can be represented as an outward shift from FF1 to FF2 (See Fig. 8.2, pg 240) (Can you name what are the other resources in the previous point of this page?)

You might also like