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growth5 - Part IIB Paper 2 Michaelmas Term 2010 Economic...

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Part IIB. Paper 2 Michaelmas Term 2010 Economic Growth Lecture 5: Technology and Endogenous Growth Dr Tiago Cavalcanti
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Readings and References Texts: (*)Jones chs. 4 & 8 Articles: Arrow K. (1962) ‘The Economic Implications of Learning by Doing’ Review of Economic Studies , 29 , no.1, 155-173. Romer P. (1986) ‘Increasing Returns and Long-Run Growth’ Journal of Political Economy , 94 , no.5, 1002-1037. Solow R. (1957) ‘Technical Change and the Aggregate Production Function’ Review of Economics and Statistics, 39 , 312-320.
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Solow (1957): decompose output changes into input change and “technological change” – take natural logarithm of Y t = B t F(K t , L t ) and differente w.r.t. time L L Y wL K K Y rK B B Y L L Y Y K K Y B B Y Y g Y + + = + + = = L L K K B Y g g g g α α + + = CRS assumptio n Growth Accounting
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captured by term B represents “technology” TFP growth rate can be measured indirectly, as residual growth in output not explained by changes in input factors L L K K Y B g g g g α α - - = g B known as the Solow residual Total Factor Productivity (TFP)
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TFP = residual term, picks up everything that has impact on output - other than changes in recorded factor inputs, including Improvements in production techniques (technological change) Institutional changes
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