ECON313chapter4notes - 1 ECON 313 CHAP 4 Econ 313 Chapter 4...

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1 ECON 313 –CHAP 4. Econ 313 Chapter 4- Contemporary Models of Development and Underdevelopment - new models show that development harder to achieve, facing more barriers than previously - broadened scope of modeling market economy in a developing-country context - one major theme is problems of coordination among agents\other themes: formal exploration of situations in which increasing returns to scale, finer division of labor, availability of new economic ideas or knowledge, learning by doing, and monopolistic competition or other forms of industrial organization other than perfect competition predominate and special long-run growth (not just static efficiency) are separately or jointly important - includes economics of imperfect information New Growth Theory: Endogenous Growth Motivation for new growth theory - no real ‘growth’ in traditional theory, just converge to zero growth without ‘shocks’, any growth is temporary phenomena - GNI increases not in labor or capital are in 3 rd category: Solow residual - This residual responsible for 50% growth in industrialized nations - Neoclassicalists credit exogenous independent technological process o However impossible to analyze determinant of technological advance because independent of economic decisions and doesn’t explain discrepancies in residuals across countries with similar technology - Neoclassical free market approach failed in developing country economic growth - Developing world capital flows (from poor to rich) prompted endogenous growth theory or new growth theory - Models hold GNI growth to be a natural consequence of long-run equilibrium and determined by system governing the production process - Seek to explain factors that determine the size of ‘Y’, the rate of growth of the GDP - Differs from neoclassical by discarding assumption of diminishing marginal returns to capital investments, permitting increasing returns to scale in aggregate production, and frequently focusing on the role of externalities in determining rate of return on capital investments - Possibility exists that investments in physical and human capital can generate external economies and productivity improvements that excess private gains by an amount sufficient to offset diminishing returns - Direct implications for growth in conflict with traditional theory o No force leading to equilibration of growth rates across closed economies; national growth rates remain constant and differ across countries depending on national savings rates and technology levels o Per capita income levels in poor need not catch up with rich countries o Prolonged recession in one country can lead to permanent increase in income gap - Endogenous help explain anomalous international flows of capital that exacerbate wealth disparities between developed and developing countries
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2 ECON 313 –CHAP 4. -
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ECON313chapter4notes - 1 ECON 313 CHAP 4 Econ 313 Chapter 4...

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