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# Additional_Growth - 7 Special Features of Knowledge...

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1 Malthusian Growth Theory Y L L* Subsistence Line F(L)

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2 Adding Capital to the Malthusian Story Y L L* L**
3 Constant Returns to Scale Production Function: Y = F(K, L) Special Property: 2Y = F(2K, 2L) or, more generally, BY = F(BK, BL) Choose B = 1/L, implying Y/L = F(K/L, 1)

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4 Rewrite this as y = f(k), y = Y/L and k = K/L y k f(k)
5 Technological Progress Invention: a new idea. Innovation: new knowledge is used in production. Diffusion: the spread of innovation.

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6 Forms of Technical Progress Labor Saving: capital replaces labor. Capital Saving: new capital goods replace old ones. Learning-by-Doing: experience leads to productivity gains. Human Capital: the quality of workers rises with their stock of knowledge.

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Unformatted text preview: 7 Special Features of Knowledge Nonrivalry: one person’s use of an idea doesn’t limit another’s use of it. Nonexcludability: inventor cannot exclude others from using it. Patents exist to prevent firms from under-producing knowledge when allocating R&D resources – externality. 8 Growth Accounting y = Tf(k) – How can we measure T? We do so as a residual. Formula gives K y T TMPP k k T 1 k y T y k T 3 k ∆ ∆ ∆ ∆ ∆ = + = + 9 We can measure everything in the equation except for the growth rate of technology – it is measured by the residual. Called the Solow residual....
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