204A-slides02a

204A-slides02a - (2a)-P.1 Growth Theory: Broad Outline 1....

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
(2a)-P.1 Growth Theory: Broad Outline 1. Foundation: The Solow Model. Romer ch.1. - Basic version: Mechanics of production, savings, and capital accumulation. - Take technological progress for granted. Take population growth as given. - Extended versions: Add human capital; consider natural resources 2. New Growth theory: Focus on technological progress. - As applied to “leading edge” countries like US : Focus on innovation, incentives for research and development; or endogenous human capital. Romer ch.3.1-4; Jones ch.4-5. - As applied to less developed countries : Focus on technology transfer, barriers to growth. - All based on the Solow model. Here introduction only. 3. Optimal Growth models: Focus on savings decisions. Romer ch.2. - Individuals maximize utility. Supply-side foundation: Solow model. - Optimal Growth = Framework for virtually all macro analysis. => Solow model is the foundation.
Background image of page 1

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

View Full DocumentRight Arrow Icon
(2a)-P.2 Part 1: The Solow Model: Agenda and Objectives • Basics: Model assumptions & interpretation. - Key concepts: Steady state and balanced growth . • Application #1: Derive the steady state and graph the balanced growth path. (a) General argument. (b) Graphical analysis. (c) Functional form example = Cobb-Douglas. • Application #2: Determine the impact of changes in model parameters. (a) Graphical analysis. (b) General comparative statics. (c) Cobb-Douglas case. • Application #3: Dynamic properties: Rate of convergence . General and Cobb-Douglas cases. • Practical applications: - Growth accounting and growth projections. - Implications for cross-country convergence: conditional vs. unconditional - Implications for open economies: capital flows. Main learning objective : Ability to do applications. • Technical skills: Differential equations – because growth is about relating initial positions to changes. Also: more on linearization. Problems sets for practice. • Don’t memorize formulas – except for basic setup and certain “concise” results.
Background image of page 2
(2a)-P.3 Solow Model: Main Equations • Stripped-down model intended to focus on Capital Accumulation. Simplify everything else. Production function : Y = F ( K , AL ) - Positive marginal products. Concave. - Constant returns to scale: F ( K , AL ) = AL F ( k ,1) where k = K /( AL ) . Define f ( k ) = F ( k . - Inada Conditions: F (0,1) = 0, F K ( k k 0 , F K ( k k →∞ 0 Capital accumulation (in continuous time): K I K dt dK = = δ / Constant savings rate (= investment rate) I = S = sY Exogenous labor force (growth rate n): L n L dt dL = = / Exogenous technical progress (growth rate g): A g A dt dA = = / • No government: interpret consumption & investment as including private & public. • No international linkages: interpret as world model or as closed economy.
Background image of page 3

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

View Full DocumentRight Arrow Icon
(2a)-P.4 Time: Discrete vs. Continuous • Discrete-time representation: Collect time into discrete periods (e.g., years).
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 18

204A-slides02a - (2a)-P.1 Growth Theory: Broad Outline 1....

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online