ECON 455 Lecture 21 Growth prospects

ECON 455 Lecture 21 Growth prospects - Econ455: Economic...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Econ455: Economic Development in China Lecture 21: April 2 Growth prospects Sandra Poncet Lorch Hall, room 207 Email: sponcet@umich.edu Office Hours: Mondays 16:30-18:30 & Wednesdays 10:30-12 2 Introduction Important to understand how economists and strategists try to project future growth -more difficult than short term forecasts -requirement of an underlying growth model Most models abstract from shocks (assumed to be random thus have zero mean) and qualitative features -crucial to check the reliability of the predictions -crucial to address in a more qualitative manner the potential threats to the general trend. In any case the only projection that one can make with certainty is that : “In the long run we will all be dead”
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 3 Lecture Outline Introduction I Growth projections A-Building blocks B-Putting the building blocks together C-Addition of ad-hoc evolution of human capital D-Introduction of exchange rate evolution E-Final results F-Limits G-Plausibility of projections despite limits II-China’s environmental challenge A-Stylized facts on environmental challenge B-So far relative failure to meet targets C-Dismal future or turning point? Conclusion 4 I Growth projections A Building blocks Departure point with α =1/3 the share of income that accrues to capital Computation is made in real terms (constant US $ at 2000 prices). Simple formulation of the overall level of GDP (Y) in terms of labor input (L), capital input (K) and technological progress (A) or Total Factor Productivity (TFP). GDP as simple constant return to scale, Cobb Douglas production function of these three variables. Willingness to abstract from inflation and exchange rate changes 1 YA K L α = Rationale for real terms:
Background image of page 2
3 5 I Growth projections A Building blocks Departure point Three building blocks: labor input (L) capital input (K) technological progress (A) or Total Factor Productivity (TFP). Labor input (L): total number of hours worked by year : L = (1 unemployment rate) × active population × number of hours worked per employee Data: past and projections come from International Labor Office Capital input (K): requires departure stock and accumulation mechanism Hypothesis of departure stock: 1960 2000 1960 1960 1950 1960 (/ ) (0 . 0 7 ) K IY KY gn δ += + 6 A Building blocks Determination of each block Capital input (K): requires departure stock (the further in the past) and accumulation mechanism Accumulation process: with I k being the gross fixed capital formation (constant US $ at 2000 prices). , , ,1960 0 (1 ) ) t tj t it Ki j i j KI K δδ = =− + How to project investment I? Typical assumption is that investment rate is constant over time But not true
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 7 How to project investment I? Alternative is to rely on past dynamics (empirical estimation) Projection of saving rate (investment rate) 8 Determination of each blocks TFP (A): requires departure level (in 2000 when projections start) and evolution mechanism How to get the departure level?
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/07/2008 for the course ECON 455 taught by Professor Poncetsandra during the Winter '06 term at University of Michigan.

Page1 / 21

ECON 455 Lecture 21 Growth prospects - Econ455: Economic...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online