MalthusianModel - The Malthusian Model Professor: Oksana...

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Professor: Oksana Leukhina January 2009 Some economic growth facts: 1. Before 1800 (the beginning of the industrial revolution), standards of living di f ered very little across countries. Di f erences in technological advances across countries manifested themselves into di f erences in population size. Since 1800. ... 2. The growth in per capita income has been sustainable in all developed countries. 3. Positive correlation between investment and output across countries. 4. Negative correlation between population growth rate and standards of living across countries. 5. World income inequality has gone up. 6. There is no systematic relationship between standards of living and its growth rate across countries. 7. Among the richest countries, there is negative relationship between the standards of living and its growth rate. Malthus in 1798 published ’An Essay on the Principle of Population,’ a highly in f uential work in which he argued against the Poor Laws of England. He believed it was impossible to increase the income of the poor because any increase in their incomes would translate into higher population growth rate. Higher population would lead to lower average labor productivity (because land is in F xed supply) which would o f set the initial gain in standards of living. The only way to increase standards of living, according to Malthus, is through population checks, or, controlling reproduction rates. We study a model which captures the main forces that Malthus had in mind when writing his essay. This model is capable of capturing Growth Fact #1 from above. Ironically, very shortly after Malthus published his ideas, the world around him starting to change drastically (see Facts #2 - #7). What did Malthus fail to notice? What important forces did he miss? The Malthusian Model is a dynamic model. Time periods are denoted by =0 1 2  The upper case variables   denote aggregate levels of consumption, output and population in time . The lower case variables and denote per capita levels of consumption and output. There are consumers in time each is endowed with 1 unit of time endowment. There is a representative F rm that hires consumers’ labor and combining it with a F xed supply of land Λ produces output. The F rm is owned by consumers, hence, all output is paid back to consumers in the form of wages and pro F ts. There is no storage technology, that is, all output in period is consumed in period .So ,w ehav e = as well as =
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This note was uploaded on 04/06/2011 for the course ECON 495 taught by Professor Thornton,j during the Spring '08 term at University of Washington.

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MalthusianModel - The Malthusian Model Professor: Oksana...

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