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Lecture 6 - The Emergence of Modern Economic Growth A...

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The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: Lecture 6 James A. Robinson Harvard September 28, 2009 James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L September 28, 2009 1 / 25
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Long-Run Living Standards As I discussed in Lecture 1, what data we have is consistent with the hypothesis that living standards were unchanged during the millennia prior to the industrial revolution. I also pointed out that this fact masked a lot of interesting dynamics. Maybe it was true that at some point after 200BCE living standards in Greece returned to what they had been in 800BCE (though this may not have happened until the Dark Ages and even then possibly not since Greece remained within the scope of the relatively functional Byzantine Empire). But this fact ignores that for 600 years living standards appear to have increased even though population was rising. The conventional wisdom in economic history on long-run living standards prior to the industrial revolution is provided by the Malthusian model James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L September 28, 2009 2 / 25
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The Malthusian Model The simplest (non-optimizing) version of the model deaths are a decreasing function of income, D ( y ) with D 0 < 0 while births, B , are independent of income. Population dynamics are as follows ˙ N > 0 if B > D ( y ) and ˙ N < 0 if B < D ( y ) . Finally income per-capita is decreasing in N (according to diminishing marginal product of labor) so there is a function y = Af ( N ) with y 0 < 0. There is a unique attracting steady-state with ˙ N = 0 where income per-capita y ° is de°ned by B = D ( y ° ) and steady-state population N ° = f ± 1 ( y ° A ) . James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L September 28, 2009 3 / 25
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The Malthusian Model y D(y),B(y) B(y) D(y) N y=Af(N) y* N*
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Comparative Statics Income per-capita always returns to the point where the birth rate is equal to the death rate. This is the unique attracting steady-state of the model. What happens if TFP improves from A to A 0 > A ? This means more output for any level of population. The initial level of population N ° now produces an income level y 0 > y ° . This leads to higher incomes and an excess of births over deaths since B > D ( y 0 ) . In consequence the population expands from N ° to N 0 until income per-capita is driven back down to where it was before. The same is true for other changes which have similar implications for the relationship between population and income, for instance good government. Low taxes and secure property rights. What determines income per-capita is the position of the birth and death schedules. James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L September 28, 2009 4 / 25
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Comparative Statics Technological Improvement y D(y),B(y) B(y) D(y) N y=Af(N) y* N* y=A’f(N) Where A’>A y’ N’
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Pizzaro versus Atahualpa
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