Econ Of Globalization. Week 2

Front 1

__________ has helped reduce poverty in a large number of developing countries but it must be harnessed better to help the world’s poorest, most marginalized countries improve the lives of their citizens.

But not all countries have integrated successfully. On average, their economies have contracted and poverty has risen.

Globalization often has been a very powerful force for poverty reduction, but too many countries and people have been left out.

Important reasons for this exclusion are weak governance and policies in the non-integrating countries, tariffs and other barriers that poor countries and poor people face in accessing rich country markets, and declining development assistance.

Back 1

Globalization

Front 2

__________ the limited natural resources constrained the population size

Back 2

Malthus (1798)

Front 3

What are the gains from economic growth?

Back 3

Growing population
Malthus(1798): the limited natural resources constrained the population size

Life expectancy

Higher income helps by enabling better nutrition and financing the production of medicine and medical research

Improving standards of living
Average income per head is increased

Poverty reduction

Front 4

Poverty Statistics

Back 4

Decrease in Poverty & Increase in Inequality

Front 5

Income growth...

Back 5

Reuces poverty

Front 6

If government policies or “shocks” have even a small impact on the long-run growth rate, they will have a huge impact on our standard of living in the long run

Back 6

In rich countries like the U.S.,

Front 7

Total output and output per capita

Back 7

GDP Growth

Front 8

Labor
Capital
Total Factor Productivity

Back 8

Elements of Growth

Front 9

An increase over time in the quantity of goods and services produced by an economy.

Back 9

GDP Growth

Front 10

adjusts for inflation.
__________ per capita: adjusts for size of population

Back 10

Rate of growth: Real GDP

Front 11

Capital, buildings, infastructure
Labor, hours worked, number of hours worked
Total factor productivity. (technological knowledge and efficiency)

Output GDP

Back 11

The Production Function

Front 12

Total value of the machines and buildings used to produce output

Back 12

Capital

Front 13

the amount of goods and services produced by an average worker in one hour

Back 13

Labor productivity

Front 14

everything else than capital and labor: education, skill, technology, efficiency

Back 14

Total Factor Productivity (TFP)

Front 15

- May have no impact on GDP per capita
- Not sustainable

Back 15

Growth in Output: Increase in labor supply

Front 16

Must increase at faster rate than labor

Back 16

Increase in captial stock

Front 17

No diminishing returns in this framework

Back 17

Increase in TFP

Front 18

relation between the level of Y and the levels of A, K, and L
Y = A * f(K,L)

Back 18

The production function

Front 19

relation between the growth rate of Y and the growth rates of A, K, and L.
DY/Y = DA/A + a * DK/K + b * DL/L
Constant Returns to Scale: a + b = 1

Back 19

Growth accounting

Front 20

Capital growth important through out
Labor, TFP important ’50 – ’73

Back 20

Growth accounting: Japan

Front 21

TFP important until ’73
Labor important after ’73

Back 21

Growth accounting: US

Front 22

rely less on labor

Back 22

UK and Germany

Front 23

More inputs means more output

Back 23

Decreasing Marginal Product: Role of Inputs

Front 24

An increase in the quantity of labor increases Real GDP.

But growth rate decreases as labor increases

An increase in the quantity of capital increases Real GDP

But growth rate decreases as capital increases

Back 24

Decreasing Marginal Product

Front 25

Growth will be fast when level of capital is low

Growth slows down as capital accumulates

Eventually, firms won’t add new capital – firms only replace depreciated capital

Back 25

Diminishing Marginal Return

Front 26

No new increase in capital will create economic growth
The economy continues to grow ONLY by inventing new technology

Back 26

Economy reaches a Steady State

Front 27

1950 – wealthiest Asian country – Singapore

1973-2000 – fast growth (per capita output increased in Singapore with almost fourfold) – even if severe crisis occurred in 1997

Most of Asian countries – similar increases in standard of living (OECD countries relatively little growth)

1960 South Korea similar standard living to Senegal or Ghana – but output increased six or seven fold

Back 27

Asian economies grow fast after 1950:

Front 28

Huge investment rates – capital accumulation

Employment growth – working age population growth
So, substantial growth in capital and, to a lesser extent, in employment

Back 28

Asian economies grow fast after 1950. Why

Front 29

They started with a very low output per capita, so they experienced a very high growth rate (7%). This a case study of

Back 29

Capital accumulation

Front 30

Can this experience be repeated elsewhere?
Not in the case of mature industrialized countries
They reached their steady state (they have achieved their growth through capital accumulation) – so the important source of growth...

Back 30

is TFP

Front 31

The influence of any factor that affects output other than capital accumulation and labor input

An economy that increases its efficiency in producing output from a given level of capital – increases its TFP

Variations among countries – variations in TFP
A twist: ___________

Back 31

Total Factor Productivity and Human Capital: Human Capital

Front 32

Skills and knowledge that accumulate over time, embodied in people

Back 32

Human Capital

Front 33

- Educational attainment

- Expenditures on education
* Allocation of resources
* Level of education
* Cost of education

Back 33

How to increase human capital

Front 34

Cross-country differentials in per capita output are substantial
* Role of physical capital
* Role of human capital (hours worked + skills and knowledge)

Significant fraction of differential is unexplained – we call this_______
Other elements of TFP

Back 34

“TFP”

Front 35

Property Rights
Regulatory Institutions
Macroeconomic Stabilization
Social Insurance
Conflict Management
Political Rights

Back 35

TFP Institutions

Front 36

Growth can be sustained through technological progress

Role of Research and Development in promoting technological progress

Example of South Korea

Back 36

TFP: R & D

Front 37

Investment by foreign firms in an economy

Encourages capital accumulation and technology transfer

Can facilitate convergence among countries

Back 37

TFP: Foreign Direct Investment

Front 38

Information and Communication Technology (sometimes just IT)

Back 38

Role of ICT

Front 39

- Through capital accumulation
- TFP gains in adopting sectors
- TFP in sectors that produce IT

Back 39

How does IT produce growth?