MIT14_02F09_lec08_09

# MIT14_02F09_lec08_09 - TOPIC TOPIC 4 Economic Growth Growth...

This preview shows pages 1–12. Sign up to view the full content.

TOPIC 4 Economic Growth

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Growth Accounting
Growth Accounting Equation Y = A F(K,N) (production function). GDP Growth Rate = ! Y/Y Growth accounting equation: ! Y/Y = ! A/A + ! K ! K/K + ! N ! N/N Output, in a country grows from: Growth in TFP (see entrepreneurial ability, education, roads, technology, etc.) Growth in Capital (machines, equipment, plants) Growth in Hours (workforce, population, labor participation, etc). 3

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Sources of Growth New invention allows firms to produce more for given K and N ! Y/Y = ! A/A Firm’s investment increases capital stock for given A and N Firm s investment increases capital stock for given A and N ! Y/Y = ! K ! K/K Labor increases for example because of an increase in pop. for given A and K ! Y/Y = ! N ! N/N 4
US Growth Accounting 1. Measure ! Y/Y , ! K/K and ! N/N from data 2. Pick the right Production Function US Production function (from before!): Y =AK .3 N .7 US Production function (from before!): Y A K N ! Y/Y = ! A/A + .3 ! K/K + .7 ! N/N 3. Calculate ! A/A as residual ! A/A= ! Y/Y - .3 ! K/K - .7 ! N/N 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
US Growth Accounting 6 Sources of Economic Growth in the United States (Denison) (Percent per year) (1) (2) (3) (4) (5) 1929-1948 1948-1973 1973-1982 1929-1982 1982-2004 Source of Growth Labor growth Capital growth Total input growth Productivity growth 1.42 1.40 1.13 1.34 0.96 0.11 0.77 0.69 0.56 0.80 1.53 2.17 1.82 1.90 1.76 1.01 1.53 -0.27 1.02 0.99 2.54 3.70 1.55 2.92 2.75 Total output growth Sources: Columns (1)-(4) from Edward F. Denison, Trends in American Economic Growth , 1929-1982, Washington, D.C.: The Brookings Institution, 1985, tabel 8.1, p. 111. Column (5) from Bureau of Labor Statistics Web site, Multifactor Productivity Trends news release, Table 1, accessed through www.bls.gov/news.release/prod3.t01.htm Figure by MIT OpenCourseWare.
Per Capita Growth Accounting We also care about growth in Y/N (per capita output = labor productivity). ! Y/Y = ! A/A + .3 ! K/K + .7 ! N/N ( ! Y/Y - ! N/N) = ! A/A + 3 ( ! K/K - ! N/N Y/Y N/N) A/A + .3 ( K/K N/N) We can decompose labor productivity growth into TFP growth and capital deepening (change in capital per worker (change in capital per worker) ! (Y/N)/(Y/N) = ! A/A + .3 ! (K/N)/(K/N) From 1995 in the US capital deepening increased a lot! (IT revolution) 7

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
US Productivity: 1947 - 2007 8 Productivity Change in Non-Farm Business Sector. Source: BLS 5 4 3 2 1 0 1947-73 1973-79 1979-90 1990-95 1995-2000 2000-2007 Average annual percent change 2.8 1.2 1.4 1.5 2.5 2.5 Figure by MIT OpenCourseWare.
Thoughts on the ‘New Economy’ • Fast output growth in the mid/late 1990s • Is it sustainable? Will it lead to higher inflation? • It depends on what is happening to productivity • “Greenspan’s gamble”: productivity is growing faster Ex-post he was right! 9

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Inflation was low and stable in the 90s! Black line - trend in CPI over time (left axis) Red line - trend in CPI inflation rate (percentage change in CPI) over time (right axis) 10 Shaded areas represent “official” recession dates (as calculated by National Bureau of Economic Research)
What does foster growth?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 11/18/2011 for the course ECON 14.02 taught by Professor Veronicaguerrieri during the Fall '09 term at MIT.

### Page1 / 45

MIT14_02F09_lec08_09 - TOPIC TOPIC 4 Economic Growth Growth...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online