D0E29 L7 - D0E29 - Theory of Economic Growth Lecture 7...

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D0E29 - Theory of Economic Growth Lecture 7 Spring term 2008 Prof. Dr. Maarten Goos and Anna Salomons M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L7 1 / 78
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Today&s class Mock exam question about the Romer model Refresher on the sources of growth Set-up for discussion of articles Introduction to the topic "Growth in Asia ± Africa" Discussion of "The Myth of Asia&s Miracle" Discussion of "Growth in East Asia. What We Can and Cannot Infer" Overview of growth in Africa ) readings: "The Myth of Asia&s Miracle" and "Growth in East Asia: What We Can and Cannot Infer" M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L7 2 / 78
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Mock exam question about the Romer model Consider the macro R&D model of semi-endogenous growth. What is the sector of technological production here? What imperfections determine the degree of technological progress in this model? Next, consider the micro R&D model. How is the production of ideas modeled here? What imperfections determine the existence of technological progress in this model? M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L7 3 / 78
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Answer to mock exam question (I) In the macro-model, the sector of technological production is the R&D sector, where ideas are produced. The change of ideas over time depends on the number of ideas in the economy as well as on the number of people employed in the R&D sector. The imperfections which may be included in this macro-model are the productive externalities. These are such that the stock of ideas can generate a positive ("standing on shoulders") or a negative ("±shing out") externality, depending on whether we believe that new ideas are easier to generate when there is a bigger stock of ideas to build on, or that new ideas are harder to ±nd once the easiest ideas have been invented, respectively. The number of people employed in the R&D sector also creates a productive externality, which is usually assumed to be negative ("stepping on toes"), re²ecting that if more people are employed in the R&D sector for a given stock of ideas, the increase in the number of ideas will be smaller. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L7 4 / 78
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Answer to mock exam question (II) The macro-level "production function" of ideas looks something like this: ˙ A = ϕ A φ L λ A There are no imperfections in the macro-level production function of ideas if it holds that λ = 1 and ϕ = 0. There is a positive externality from the stock of ideas if ϕ > 0, and a negative externality from the number of people employed in R&D (for a given stock of ideas) if λ < 1. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L7 5 / 78
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Answer to mock exam question (III) In the micro-model, ideas are produced by inventors. In the steady state, these inventors make up a constant share s R of the total labor force. Rather than inventing, workers could also supply their labor to the &nal goods sector. We know that workers will sort themselves into becoming inventors or workers in the &nal goods sector up to the point where, in equilibrium, the expected remuneration from being an inventor equals the wage paid in the &nal goods sector. The expected remuneration from being
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D0E29 L7 - D0E29 - Theory of Economic Growth Lecture 7...

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