growth4 - Part IIB. Paper 2 Michaelmas Term 2010 Economic...

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Unformatted text preview: Part IIB. Paper 2 Michaelmas Term 2010 Economic Growth Lecture 4: Human Capital Models of Economic Growth Dr Tiago Cavalcanti Readings and Refs Texts: *Jones chs. 3 & 8 Articles: (*) Mankiw, Romer D. & Weil (1992) A contribution to the empirics of economic growth Quarterly Journal of Economics , 107 , 407-437. Lucas (1988) On the mechanics of economic development Journal of Monetary Economics, 22 , 3-42. (*) Lucas (1990) Why doesnt capital flow from rich to poor countries American Economic Review , 80 (2), 92-97. Checking Predictions #3: Regressions MRW ran regressions of the form 1 0, 1 ,0 2 3 ln and ln ln ln( ) i i y i i y i i i i i i g C b y g C b y b s b n g = + + = + + + + + +- first regression tests for absolute convergence. Too demanding! It requires that income gap between two countries decline, irrespective of what type of policies, institutions, and investment behavior these two countries have. - second regression tests for conditional convergence- get estimate of speed of convergence Testing for conditional convergence: incorporate terms to take account of steady state differences directly. BX include a whole range of possible determinants, including the original investment rates and population growth but also variables such as educational attainment levels, life expectancy, public spending on education, and on consumption, black- market for.ex. premium, political instability etc. estimates of convergence rate remain around 2% - so they conclude that strong and robust evidence for conditional convergence at rate around 2 percent Convergence rate of 2% only half of value predicted by neo-classical theory Prediction #4: Interest rates, capital flows Neo-classical model + Cobb-Douglas technology: -- = = = = 1 1 ~ ~ ) ~ ( ' y k k f dK dY r Stylised facts: = 1/3, and y US = 10 y India 2 2 1 1 1 1 ) ( 10 ) ( ) 10 ( ) ( ) ( US India India US India India US US India India US India A A A A y y A y A y r r = = =---- - If technology transferable, capital investment about 100 times...
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growth4 - Part IIB. Paper 2 Michaelmas Term 2010 Economic...

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