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Econ4730answerstoprelim1_Solutions - 1 November 3 2008...

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0 1 θ /4 1/2 -k y (dy/dt)/y Stable equilibrium Unstable equilibrium November 3, 2008 Economics of Export-Led Development Professor Henry Wan Take Home Prelim: Econ 4730 F2008 Part A I. 1a) Refer also to the following: Young, A., (1994). “Lessons from the East Asian NICS: A contrarian view,” European Economic Review. 38, 964-973. Young, A., (1995). “The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience,” The Quarterly Journal of Economics . 641-680. The key here is to recognize the concept that differentiates between perspiration and inspiration. Alwyn Young used Solow residuals to argue that GDP growth of Korea, Taiwan, Hong Kong and Singapore’s economies was the effect of factor accumulation. Young argues that these NIEs worked hard, following a path of “perspiration,” but they did not necessarily work smart and follow a path “inspiration.” TFP is low in these NIEs, productivity is relatively low, and factor accumulation was the effect of growth in labor participation rates, intersectoral transfers in labor, human capital, and investment to GDP rations. Since this is all explained in the Solow Growth Model, Young argues that if controlling for factor accumulation, the “success in growth” by these NIEs is not that remarkable. They represent the “miracles of accumulation.” Young also argues prior measurements of output- per-capita should be replaced with output-per-worker, because of a better correlation to productivity. 1b) Refer also to the following: Young, A., (1991). “Learning by Doing and the Dynamic Effect of International Trade,” Journal of Political Economy . 101(3), 443-472. 1
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The first key here is to recognize the concept of one-for-all static gains. Using an endogenous growth model, Young looks at the effects of spillovers across goods in the process of learning by doing. Young accepts the level effect, which is a one-time jump in growth level rather than a continuous, sustained growth. So, he distinguishes between growth and level effects. Young used Solow residuals to question whether outward-orientated policies of nations leads to higher growth rates, more technological progress and better welfare than inward-orientated policies. The comparison can be presented as free trade vs. autarky, and the answer to the question may seem relatively obvious… However, Young accepts that while level effects may be increasing in free trade economies, he shows that their growth levels of a DC are always less than those of autarky economies. Young concludes that an NIC can upgrade and move up the international product ladder if they start out technologically a little bit ahead of the LDCs. The LDCs have to wait for the NICs to experience this upgrade to benefit from the structural change and technical progress themselves. The NICs then have to start experience slower growth rates as they catch up to the DCs. In other words, Young assumes learning by doing is finite within a labor market for a good, so LDC labor is forced into industries where learning by doing is exhaustible.
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