Lecture 8 - ECONOMICGROWTH:TECHNOLOGICAL EC205.01 FALL2009...

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

11/9/2009 1 ECONOMIC GROWTH TECHNOLOGICAL ECONOMIC GROWTH: TECHNOLOGICAL PROGRESS AND EMPIRICAL APPLICATIONS EC205.01 FALL 2009 ALPER 1 Outline y Solow model with technological progress y Policies to promote growth y Empirics: Theory vs. facts y Endogenous growth models y One sector y Two sector EC205.01 FALL 2009 ALPER 2 The Solow Model y … does not incorporate technological progress in its standard version y Implication: Per capita income is constant at the steady state y Is this realistic? y Examples: y U.S. real per capita income growth: 2% annually on average between 1904–2004 y Turkish real per capita income growth: 2% annually on average between 1969 – 2008 y The real price of computer power has fallen by 30% in the last 3 decades EC205.01 FALL 2009 ALPER 3

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

View Full Document
11/9/2009 2 TECHNOLOGICAL PROGRESS IN THE SOLOW MODEL y Define E = labor efficiency y Assume: y Technological progress is labor augmenting y it increases labor efficiency at the exogenous rate g E g Δ y We now write the production function as: where L × E = the number of effective workers. y Increases in labor efficiency have the same effect on output as increases in the labor force. EC205.01 FALL 2009 ALPER 4 = (, ) Y FKL E Notation y Notation: y = Y/LE = output per effective worker k = K/LE = capital per effective worker y Production function per effective worker: y = f ( k ) y Saving and investment per effective worker: sy = sf ( k ) y “Per effective worker” y a mathematical device to make the model tractable… EC205.01 FALL 2009 ALPER 5 Break even investment ( δ + n + g ) k = break even investment: the amount of investment necessary to keep k constant. Consists of: y k to replace depreciating capital y n k to provide capital for new workers y gk to provide capital for the new “effective” workers created by technological progress y Technological progress increases the number of effective workers at rate , y capital per effective worker to fall at rate y Investment equal to would prevent this. EC205.01 FALL 2009 ALPER 6
11/9/2009 3 Technological progress in the Solow model Investment, break even investment sf(k) ( δ + n + g ) k Δ = s f ( ) ( + n + ) EC205.01 FALL 2009 ALPER 7 Capital per effective worker, * Steady state growth rates 0 k = K / ( L × E ) Capital per effective worker Steady state growth rate Symbol Variable EC205.01 FALL 2009 ALPER n + g Y = y × E × L Total output g ( Y / L ) = y × E Output per worker 0 y = Y / ( L × E ) Output per effective worker The Golden Rule To find the Golden Rule capital stock, express c * in terms of k * : c * = y * i * = f k * + n + g k * In the Golden Rule steady state, the marginal EC205.01 FALL 2009 ALPER 9 f ( k ) ( n g ) k c * is maximized when MPK = + n + g or equivalently, MPK = n + g product of capital net of depreciation equals the pop. growth rate plus the rate of tech progress.

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

View Full Document
11/9/2009 4 Balanced Growth y Solow model’s steady state exhibits balanced growth many variables grow at the same rate.
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/27/2009 for the course ECONOMICS ec 205.1 taught by Professor Emrealper during the Spring '09 term at Boğaziçi University.

Page1 / 21

Lecture 8 - ECONOMICGROWTH:TECHNOLOGICAL EC205.01 FALL2009...

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

View Full Document
Ask a homework question - tutors are online