POSC 182 Lecture 3 2010

POSC 182 Lecture 3 2010 - POSC 182 Politics and Economic...

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POSC 182: Politics and Economic Policy Unit 1: Institutions Lecture 2: The Underlying Causes of Growth January 8, 2010
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Chinese Income Distribution Mean Income in 1970 Mean Income in 2000 Width ~ Degree of Inequality • Mean Income has Increased • Poverty (<$1/day) has Decreased • Inequality has Increased Source: Sala-i-Martin (2006) Income Distribution In 1970 Income Distribution In 2000
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Income Per Capita Adjusted for Inflation Incomes are generally increasing But, there is divergence Source: Angus Maddison (1995)
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The Puzzle of Divergence Solow Model There is a diminishing marginal return to capital Convergence: Poor countries should grow faster than rich countries because of diminishing marginal return to capital Output / Income (Y) Capital (K) ∆K ∆K A B Diminishing Marginal Return to Capital: A > B K1 K2 Y1 Y2
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Innovation as a Source of Growth
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Different Types of Growth Growth from Factor Accumulation Accumulation of capital and human capital (total labor and skills) as Solow predicts
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