Chapter7 Growth - de Janvry and Sadoulet Chapter 7 Explaining economic growth The macro level Take home messages for chapter 7 1 GDP growth is the

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de Janvry and Sadoulet 1 9/21/10 Chapter 7 Explaining economic growth: The macro level September 21, 2010 1. The growth puzzle We have seen that economic growth is the cornerstone on which economic development is built (Chapter 1). We have also seen that growth performances across nations have been highly unequal, with some developing countries converging in per capita income with the industrialized countries while others have been lagging behind, leading to the concept of conditional convergence (Chapter 2). And we have seen that how to catch up with the more industrialized countries has been a primary objective in the long history of thought in development economics (Chapter 3). Yet, our ability to explain economic growth, the central purpose of economics, is highly deficient, leaving us with what have been called the “mystery of economic growth” (Helpman, 2004) and the “elusive quest for growth” (Easterly, 2002). What we know is that growth basically depends on factor accumulation (labor, capital, materials, land) and on gains in productivity in the way factors are used to produce (the production function). However, what drives factor accumulation and gains in factor productivity remain highly contentious. Different models offer different explanations with different policy implications as to what to do to accelerate growth. The truth is that each of these models offers particular insights into the growth process. For that reason, there are lessons to be derived from each of the main models that have been proposed to explain growth. Again here, we are interested in both the positive analysis of growth (what explains economic growth?) and the normative analysis (what can be done to accelerate growth?). To answer these questions, economists use of economic models. 2. Modeling in economics An economic model is a simplification of reality that captures a complex process that can explain the outcome of interest, here economic growth. Because it has to be a Take home messages for chapter 7 1. GDP growth is the cornerstone of development, yet it is one of the most difficult economic outcomes to explain and predict, with many competing theories, but also many different effective recipes. 2. The Harrod-Domar model stresses the role of savings and capital accumulation as the engine of growth. By contrast, the Solow model focuses on the relative roles of technological change and factor deepening in explaining growth, leaving technology as the main determinant of long term growth in per capita income, yet unexplained by the model. 3. Dual economy models give importance to productivity growth in agriculture for successful industrialization. In this role, agriculture is seen as either the source of labor for industrial employment, or of cheap food and correspondingly low nominal wages, favoring sustained industrial growth. 4. Other models such as ADLI (agriculture demand-led industrialization), sectoral linkages, and
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This note was uploaded on 02/09/2011 for the course ECON c171 taught by Professor Alaindejanvry during the Fall '10 term at University of California, Berkeley.

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Chapter7 Growth - de Janvry and Sadoulet Chapter 7 Explaining economic growth The macro level Take home messages for chapter 7 1 GDP growth is the

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