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Economic Growth Notes
This is a sample of our (approximately) 19 page long Economic Growth notes, which we sell as part of the Development Economics-1 Notes collection, a 1st Class package written at Oxford University in 2011 that contains (approximately) 365 pages of notes across 19 different documents.
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Economic Growth Revision
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Harrod Domar model Useful for development planning in 1970s Growth in US - endogenous growth model Models do not show booms/accelerations/stagnations very well Volatility - not explained by Solow - BUT Solow explains the trend (just not the fluctuations in the trend)
Transformation needs to be incorporated explicitly
Solow model does not explain concentrated growth
Expectation driven versus history driven
E.g. expectation driven - expect to sell more shoes therefore build a factory (perceived returns to investment) OR expect to sell only a few shoes so buy from a supplier
Shift from 'good' equilibrium to 'bad' equilibrium Industrialisation - huge fixed costs, average cost will fall Can this model be tested?
Rich nations - constant path
Poor nations - stuck being poor - stagnant
Transition nations - some have taken off, some converge to the poor (middle income thinning out) Away from steady state → ratio can change temporarily due to adjustment
Constant returns to scale can only be sustained by perfect competition. In order to have imperfect competition there must be ↑returns to scale. 2Y = F (2K, 2L, A) 2Y < F (2K, 2L, 2A) → AS NON RIVALROUS
Romer 1990 - 3 sectors:
1. R & D Competitive - proportional relation between previous knowledge and new knowledge. Scientists don't become billionaires
2. Intermediate goods sector→ IMPERFECT COMPETITION drug companies make billions
3. Final goods sector K, L, A → Y PERFECT COMPETITION Romer, Arrow, AK → increasing returns AND PERFECT COMPETITION. HOW? Assume non-rivalrous and non-excludable A = Ao
= 1 is very specific circumstance Endogenous assume constant returns to a factor Lucas model→ assumes constant returns to human capital
Number of researchers ↑
Explosive growth is not the same as exponential growth => growth rate is constant Explosive growth is a path where growth rate itself is increasing Solutions to knife edge: o Essay question not true of these 2 models:
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