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growth3 - Part IIB Paper 2 Michaelmas Term 2010 Economic...

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Part IIB. Paper 2 Michaelmas Term 2010 Economic Growth Lecture 3: Empirical Evidence for the Neo-Classical Model Dr Tiago Cavalcanti
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Readings and Refs Texts: Jones ch.3, (*) Articles: (*) Mankiw, Romer & Weil (1992) ‘A contribution to the empirics of economic growth’ Quarterly Journal of Economics , 107 , 407-437. Sala-i-Martin (1996) ‘The classical approach to convergence analysis’ Economic Journal , 106 , 1019-1036. Temple (1999) ‘New growth evidence’ Journal of Economic Literature , 37 , 112-156.
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Empirical Evidence for/against Neoclassical Growth Model Contrast testable model predictions with data 1. Steady state levels 2. Convergence 3. Growth Regressions
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Remember: Solow-Swan Model Prediction: Capital per effective labour units converges monotonically to steady state * If ( ) then ( ) 0 k k k < < & % % % Also, growth rate decreasing in k % ( ) In ( ) ( ) is decreasing with from concavity of ( ) k k sf k g n g k k sf k k f k k δ = = - + + Proof : % & % % % % % % % %
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k k sf ~ ) ~ ( ( ) n g δ + + k k ~ ~ & k ~ * ~ k Transitional Dynamics
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Conditional Convergence Countries converge to steady state determined by parameters ( s , n , g , δ ) * k % Does model predict poorer countries grow faster ( absolute convergence )? No! Conditional on having similar parameters (same steady state), poorer countries predicted to grow faster ( conditional convergence ) i k t k t t y y g ε β α + + = - - ) log( ) , (
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Source: Jones, p67
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Source: Sala-i-Martin
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Source: Sala-i-Martin
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Source: Sala-i-Martin
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Evolution of the World Income Distribution Xavier Sala-I-Martin
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