New Growth Theories Endogenous Growth Models J D

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“New Growth Theories” Endogenous Growth Models J. D. Han King’s University College UWO

“New Growth Theories” Endogenous Growth Models J. D. Han King’s University College UWO

1. Problems of Neo-Classical Growth Model = Solow Model • Convergence MPK eventually declines

1. Problems of Neo-Classical Growth Model = Solow Model • Convergence MPK eventually declines • Technological Advances may eliminate convergence, but they are Exogenous in the model- The growth model itself does not explain the TA, and technical innovation happens out of blue, and is injected into Solow Model.

2. Endogenous Growth Model and New Explanatory Variable The mainline Endogenous Economic Growth Model

2. Endogenous Growth Model and New Explanatory Variable The mainline Endogenous Economic Growth Model Identifies Human Capital as the key to sustainable Technological Advance in the long run.

The Formal EG Model: Romer-Mankiew-Weil Model • Technological advance is the result of the

The Formal EG Model: Romer-Mankiew-Weil Model • Technological advance is the result of the intentional actions of human creativity, such as invention, innovation, and Research and Development • Some institutions promote those actions, and others inhibit them. example) Government-funding for Educational Institution and R & D; patent law protecting intellectual properties help promote invention, innovation, and creativity http: //www. stanford. edu/~promer/Economic. Growth. pdf

Growth, Technology and Education Engelbrecht – At an early stage of economic development, the

Growth, Technology and Education Engelbrecht – At an early stage of economic development, the level of education plays important role in technological catch-up – Productivity growth is more rapid where countries have higher levels of average schooling – Human capital has largest effects when specific to subcategories important for technological diffusion (science, math, engineering)

Classical Economic Growth Theories Endogenous Economic Growth Theories focuses Technology-Physical Capital Technology-Human Capital explores

Classical Economic Growth Theories Endogenous Economic Growth Theories focuses Technology-Physical Capital Technology-Human Capital explores Savings as a source of Capital Accumulation Education as a source of Human Capital Development

Human Capital Theory pioneered by Gary S. Becker • (1964, 1993, 3 rd ed.

Human Capital Theory pioneered by Gary S. Becker • (1964, 1993, 3 rd ed. ). Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. Chicago, University of Chicago Press. • human capital – “our knowledge, skills learning, talents and abilities. ” (Definition by OECD) http: //www. oecd. org/document/43/0, 3343, en_21571361_37705603_37781227_1_1, 00. html

Labor versus Human Capital • Labor - Quantity of workforce - physical - isolated

Labor versus Human Capital • Labor - Quantity of workforce - physical - isolated , individual • Human Capital -Quality of workforce -Intellectual - Between Humans, Institutional

Unlike physical labor (and the other factors of production), knowledge is: • Expandable and

Unlike physical labor (and the other factors of production), knowledge is: • Expandable and self-generating with use: as doctors get more experience, their knowledge base will increase, as will their endowment of human capital. The economics of scarcity is replaced by the economics of self-generation. • Transportable and shareable(non-exclusive): knowledge can be moved and shared. This transfer does not prevent its use by the original holder. It is public goods.

How to quantify Human Capital? • Education* • (years of )Schooling • Literacy

How to quantify Human Capital? • Education* • (years of )Schooling • Literacy

Evidence: Economic Growth and the Quality of Human Capital • One standard deviation increase

Evidence: Economic Growth and the Quality of Human Capital • One standard deviation increase in international test scores (generalized) impacts growth rate by 1% per year • 1% rise in literary scores compared to the international average associated with 2. 5% rise in productivity and 1. 5% Robert Barro; The American Economic in GDP per capita Review; May 2001

4. Math of the Formal Model: Romer-Mankiew-Weil Model • Instead of Y= A a

4. Math of the Formal Model: Romer-Mankiew-Weil Model • Instead of Y= A a 1 -a K L of conventional Neo-Classical Model • proposes Y = A a K b 1 -a-b H L

What does this mean in graph of the k-y dimension of the Solow type?

What does this mean in graph of the k-y dimension of the Solow type? - For MPk, and the Convergence Issue over time as K rise and H rises as well.

 • Because of H, there is no Convergence; an increase in H cancels

• Because of H, there is no Convergence; an increase in H cancels the decreasing Marginal Product of capital. H can enhance MPk, and becomes the engine of growth

5. Empirical Testing of Endogenous Growth Model • Run a restricted regression of log

5. Empirical Testing of Endogenous Growth Model • Run a restricted regression of log (d. Y) = α 0 + α 1 log (d. K) + α 2 log (d. H) + α 3 log (d. L). Empirical results are mixed • Remaining Ambiguity: If H is measured by a narrow concept of “Schooling”, it delays but eventually shows the DMR again. http: //www 2. warwick. ac. uk/fac/soc/economics/seminars/macro/mankiw 2. pdf

6. Limitations and Extension A Lot of Remaining Ambiguity of Human Capital -some authors

6. Limitations and Extension A Lot of Remaining Ambiguity of Human Capital -some authors suggest that education system should be included -not fully measured by a single, individual measure of education eg) military services, and non-school training and services are not formally included in education Thus, broad sense of education system should be considered.

7. Some Other Less Formal Models of Endogenous Growth model

7. Some Other Less Formal Models of Endogenous Growth model

Example 1) Financial Development by King and Levine; by J. D. Han, et. al.

Example 1) Financial Development by King and Levine; by J. D. Han, et. al. • Y = f( H, M 3/Y; K, L) Y = f( H, M 3/Y , G/Y, (M+X)/Y, INF) • Empirical results: H, M 3/Y, IY are significant: /t-value/>1. 96 INF, G/Y, (M+X)/Y are not significant.

Example 2)Curse of Natural Resources by Carlos Leite http: //ideas. repec. org/p/imfwpa/9985. html Model:

Example 2)Curse of Natural Resources by Carlos Leite http: //ideas. repec. org/p/imfwpa/9985. html Model: Y = f( R; K, L) Results: Resources have negative impacts on Y. Conclusion: “Nature corrupts human beings” - Natural resources decrease Human capital.

Example 3) Quality of Government (or its lack) • D%Y = a + b

Example 3) Quality of Government (or its lack) • D%Y = a + b X + c (Quality Index of Government) Results? Generally +ve correlation • D%Y = a + b X + d (Corruption Index of Government) Results? Mixed or + ve correlations between corruption and growth for some countries Interpretations? Corruption can improve economic efficiency in an imperfect world; Cultural differences in definition of corruption

Excellent References for Corruption • *TI Corruption Perception Index and Barometer, www. transparency. org

Excellent References for Corruption • *TI Corruption Perception Index and Barometer, www. transparency. org • *WB Governance Indicators, http: //info. worldbank. org/governance/wgi 2007/ • *WB and ERDB Business Environment and Enterprise Performance Surveys, • http: //info. worldbank. org/governance/beeps/ • *UN Interregional Crime and Justice Research Institute, International Crime • Victims Surveys, http: //www. unicri. it/wwd/analysis/icvs/statistics. php http: //qcpages. qc. cuny. edu/Writing/Sun%20 -%20 PSCI%20384 W%20 S 08. pdf

Example 4) other Models • Carlos Leite argues that the endowment of resources in

Example 4) other Models • Carlos Leite argues that the endowment of resources in fact hinders economic development. • Other model http: //www. imf. org/external/pubs/ft/wp/200 4/wp 04217. pdf

Summary Formal Endogenous Growth Theory Capital Decreasing MP Labor (Forces) Growth Technology R &

Summary Formal Endogenous Growth Theory Capital Decreasing MP Labor (Forces) Growth Technology R & D: New Tech Diffusion: Existing Human Captial Education: Schooling Literacy Ad hoc Endogenous Growth Model Other Preliminary Variables: (No) Corruption Order (Crime Rate) Government Policy

Example 5) Culture and Institution • Max Weber (19 th century) said that ethics

Example 5) Culture and Institution • Max Weber (19 th century) said that ethics matters for modern economic growth. • Gino Tabellini(2006; 2011)’s empirical works on European countries: Culture and Institution matters persistently for sustainable economic growth in the long-run. • From studies of East Asian economies, Tu Weiming at Harvard says that Neo-Confucian ethics matters in the long-run sustainable economic growth.

The Bottom line is -There a variety of Endogenous Growth Theories. -They focus on

The Bottom line is -There a variety of Endogenous Growth Theories. -They focus on ‘something inside or deeper’ than K, L, and T, which is called ‘Endogenous Factors’. -Some focuses on Human Capital, and other focuses on Social Capital or Culture and Institutions. -Somewhat convincing, but difficult to prove it definitely.