EC185-PS4-5 - The Theory of Economic Growth Problem set 4-5...

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The Theory of Economic Growth Problem set 4-5 Unified Growth Theory and Comparative Development Solutions ¨ Omer ¨ Ozak * November 13, 2008 A Unified Growth Theory Consider Unified Growth Theory: Problem 1. Some observers suggest that the Malthusian era is a period marked by stagnation. Others have noted that this stagnation is deceiving and that technology and population advanced significantly over this period, although at a slow pace. How can we reconcile between these viewpoints? Solution: Observers who argue that the economy is stagnant during the Malthusian era have in mind some measure of product per capita or wages, which certainly remained quite constant during that era. But this does not imply that other variables, e.g. total population, total income, the stock of technology or capital, remained constant or stagnant during that period. As we have seen, models of growth of the Malthusian period and UGT are able to reconcile both viewpoints, by showing that increases in technology transform in increases in population without variations on per capita levels. Problem 2. The average investment in human capital was negligible in the Malthusian era, whereas in the second phase of industrialization it increased dramatically? Is it the Age of Enlightenment * Department of Economics, Brown University. Email: [email protected] 1
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¨ Omer ¨ Ozak that brought about this change (i.e., is it a change in preferences?) What triggered this change according to UGT? Solution: According to UGT the cause of this increase in average investment in human capital was the increase in the demand for human capital itself by the industrial sector. The inevitable acceleration of technological progress in the process of development ultimately changes the technological environment rapidly and human capital becomes essential to cope with these changes.
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