growth6 - Part IIB Paper 2 Michaelmas Term 2010 Economic...

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Part IIB. Paper 2 Michaelmas Term 2010 Economic Growth Lecture 6: R&D Models of Economic Growth Dr Tiago Cavalcanti
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Readings and Refs. Texts: (*)Jones chs. 4&5 Articles: Romer P. (1990) ‘Endogenous technical change’ Journal of Political Economy , 98 , no.5, S71-S102.
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Neo-classical model: steady-state growth rate g y = g k = g A = g determined exogenously in the model policies ( investment rate etc.) have only level , but not long run (steady state) growth effects transitional growth effects Recall: Exogenous Growth
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1. explain technological progress within model 2. Long-run growth rate affected by policies that improve knowledge/technology creation In ‘Learning by Doing’ model technical progress explained by externality in the aggregate production function perpetual long run growth only in special case μ = 1 - α dependence on parameter values typical feature Implications of Endogenous Growth α α - = 1 j j j L K A Y μ = L K A A
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In ‘Learning by Doing’ models technical progress is an unintended by-product of economic activity (investment, education etc.) Knowledge creation unrewarded in such models remember Euler’s THM r K + w L = Y CRS assumption no “cookies” left to pay for knowledge creation and technological progress g Reward for Knowledge Creation
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R&D Models of Growth improvements in technology achieved through new ‘ideas’ ‘ideas’ generated by allocating resources to research and development (R&D) important feature of knowledge: while potentially costly to generate, (inherently) non-rivalrous and non-excludable In a perfectly competitive world, the market price for an idea will be zero!
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