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Endogenous Growth Models Notes

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Endogenous Growth Models Topics

• Learning-by-Doing

• Human Capital

• Research and Development

• International Technology Transfer

Reading

• Reasons for going beyond Solow model (3)

• Learning-by-doing model

• Learning-by-doing algebraically

• Learning-by-doing vs. Solow model

Learning-by-Doing

• You should know the 3 reasons for going beyond the Solow model

• There is a steady state where everyone who shares the same technology will have the same growth rate
○ The growth rate will be determined exogenously

• When we talk about the AK model, the power of K is the thing we focus on
○ K^1 tells us the MPK will independent of the level of K
 i.e. very rich with lots of capital, MPK can still be high
○ However, microeconomists do not like brute force modelling

• Why at aggregate level can production function be AK?
○ These are the three stories we discuss in this lecture

• Bromer (1986) - JEP
○ made the Learning by Doing model more user friendly

• The learning by doing method differentiates the micro and macro level
○ At micro level we have diminishing MPK
○ At aggregate (macro) level because of spill over we have constant MPK
○ We can write this in algebraic form or graphically

• When a firm invests, other firms learn from its experience too
○ The key to the learning by doing method is this positive externality Learning-by-doing algebraically
○ How do we capture this difference between micro and macro level?
○ We use subscript (i) to express an individual firm
○ At micro level:
 When a

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