ho5e-ch11---macroeconomics

1、R. GLENNHUBBARD,ANTHONY PATRICKO’BRIEN,FIFTH EDITION,© 2015 Pearson Education, Inc..,Long-Run Economic Growth: Sources and Policies,Obtaining Economic Growth,In the previous chapter, we looked at ways to measure e

2、conomic growth in the long and short terms.In this chapter, we will consider the effects of different government policies on long-term economic growth.Economic growth, after all, is not inevitable; history has seen lon

3、g periods of stagnation where no sustained increases in output per capita occurred.Why have some countries been able to achieve rapidly increasing real GDP per capita, while other countries have failed to keep pace?Ou

4、r goal in this chapter is to develop a model of economic growth to help answer questions such as this.,Economic Growth over Time and around the World,11.1,Define economic growth, calculate economic growth rates, and desc

5、ribe global trends in economic growth.,From Prehistory to the Middle Ages,Economist Brad DeLong estimates that in 1,000,000 B.C., our ancestors had a GDP per capita of approximately $145.He estimates that GDP per capit

6、a in 1300 A.D. was also about $145.In other words, no sustained economic growth occurred before the middle ages; a peasant on a farm in 1300 A.D. was about as well off his ancestors.,The Industrial Revolution,Significan

7、t economic growth did not really begin until the Industrial Revolution, the application of mechanical power to the production of goods and services which began in England around 1750.Before this, production of most good

8、s had relied on human or animal power.The use of mechanical power allowed England and other countries—like the United States, France, and Germany—to begin to experience long-run economic growth.,Why Did the Industrial

9、Revolution Begin in England?,Nobel Laureate Douglass North argues that the Glorious Revolution of 1688 was a key turning point in the economic history of Britain.After that date, the British Parliament, rather than the

10、king, controlled the government. The court system also became independent of the king.The government was then able to make credible promises regarding upholding property rights, protecting wealth, and the elimination of

11、 arbitrary tax increases.This, claims North, made entrepreneurs willing to make the investments necessary for the Industrial Revolution to take hold.,Average Annual Growth Rates Are Important,The graph shows Brad DeLong

12、’s estimated average annual growth rates for the world economy.The Industrial Revolution, and its subsequent spread throughout the world, resulted in sustained increases in real GDP per capita.,Average annual growth rat

13、es for the world economy,Figure 11.1,Why Do Growth Rates Matter?,The differencebetween 1.3% and2.3% may not seemlike much; but over along period, it makes aremarkable difference.Over 50 years, a 1.3%growth rate le

14、ads toabout a 91% increasein real GDP per capita.But a 2.3% growth rate leads to about a 212% increase.In the long run, small differences in economic growth rates result in big differences in living standards.,Averag

15、e annual growth rates for the world economy,Figure 11.1,Differences in Incomes across Countries,Economists often refer to the high-income countries (or industrial countries) of Western Europe, Australia, Canada, Japan, N

16、ew Zealand, and the United States, in comparison to the poorer developing countries of the rest of the world.The 1980s and 1990s have seen some countries progress out of the developing category, like Singapore, South K

17、orea, and Taiwan; these are often referred to as newly industrializing countries.Real GDP per capita is markedly different across the world, even after correcting for cost of living differences. In 2012 it ranged from

18、a high of $103,900 in Qatar to a low of $400 in the Democratic Republic of the Congo.,GDP per Capita in 2012,The figure shows GDP per capita (in US $) in 2012 for each of the world’s nations, adjusted for differences in

19、the cost of living.,GDP per capita, 2012,Figure 11.2,Is Income All That Matters?,By concentrating on income differences between countries, are economists missing something important?While incomes have not been rising in

20、, for example, sub-Saharan Africa, economist Charles Kenny with the World Bank argues that those countries have made rapid advances in health, education, and civil and political liberties.,William Easterly, an economist

21、at NYU, confirms that advances in these factors do not necessarily go hand in hand with income increases, but are essential to raising living standards.,What Determines How Fast Economies Grow?,11.2,Use the economic grow

22、th model to explain why growth rates differ across countries.,Developing a Model of Economic Growth,An economic growth model seeks to explain growth rates in real GDP per capita over the long run.As we noted last chapte

23、r, the key to this is labor productivity: the quantity of goods and services that can be produced by one worker or by one hour of work.Two main factors affect labor productivity: The quantity of capital per hour worked

24、, andThe level of technology.So our model will concentrate on changes in the quantity of capital, and technological change.Technological change: A change in the quantity of output a firm can produce using a given qua

25、ntity of inputs.,Technological Change,There are three main sources of technological change:Better machinery and equipmentInventions like the steam engine, machine tools, electric generators, and computers have allowed

26、faster economic growth.Increases in human capitalHuman capital is the accumulated knowledge and skills that workers acquire from education and training or from their life experiences.Better means of organizing and man

27、aging productionIf managers can do a better job of organizing production, then labor productivity can increase. An example of this is the just-in-time system, first developed by Toyota; this involves assembling goods fr

28、om parts that arrive at the factory exactly when they are needed.,Production per Worker,Suppose we wanted to describe a per-worker production function: the relationship between real GDP per hour worked, and capital per h

29、our worked, holding the level of technology constant.The first units of capital would be the most effective, allowing output per hour to increase most.,Subsequent increases would result in diminishing returns: smaller i

30、ncreases in output resulting from increasing one factor of production progressively higher while keeping the other factors of production constant.,The per-worker production function,Figure 11.3,More Capital or Technologi

31、cal Change?,If a country is relatively lacking in capital—like many of the developing countries—increases in capital will be very effective at increasing real GDP per capita.In countries where the amount of capital is a

32、lready relatively high, technological change becomes a more effective way to increase output per hour.,Technological change increases output per hour worked,Figure 11.4,The Economic Failure of the Soviet Union,Under Comm

33、unism, the Soviet Union was a centrally planned economy, where the government owned nearly every business and made all production and pricing decisions.The Soviets concentrated on improving their capital stock, and in t

34、he 1950s, their output per hour improved faster than in the United States.But Soviet managers had little incentive to develop new ways of doing things, and they did not have to worry about competition. This retarded tec

35、hnological change and resulted in slowing growth rates for output in the Soviet Union.,New Growth Theory,The model of economic growth we have developed was essentially developed by Nobel Laureate Robert Solow in the 1950

36、s.Solow did not seek to explain technological change, instead treating it as the result of chance scientific discoveries.Paul Romer developed the new growth theory, a model of long-run economic growth that emphasizes

37、that technological change is influenced by economic incentives and so is determined by the working of the market system.,New Growth Theory and Knowledge Capital,Romer argues that the accumulation of knowledge capital is

38、a key determinant of economic growth. Increases in knowledge capital result from research and development, and other technological advances.Physical capital is rival and excludable—a private good—and this results in its

39、 diminishing returns.But knowledge capital is nonrival and nonexcludable—a public good—and hence results in increasing returns—not at the firm level, but at the economy level.,Government’s Role in Knowledge Capital Gene

40、ration,Public goods, such as knowledge capital generation, result in free-riding: benefitting from goods and services you do not pay for.Example: Bell Labs’ development of transistor technology resulted in immense profi

41、ts for other firms.Because firms do not enjoy the entire benefit of their knowledge capital, they do not produce enough of it.The public good nature of knowledge capital leads to a role for government policy in:Prote

42、cting intellectual property with patents and copyrightsSubsidizing research and developmentSubsidizing education,Protecting Intellectual Property,Governments seek to protect intellectual property through the use of pat

43、ents and copyrights.Allowing firms to benefit from their own research and development increases their incentive to perform it.Patents are the exclusive right to produce a product for a period of 20 years from the date

44、 the patent is applied for. This period of time is designed to balance the chance for firm to benefit from its invention against the need of society to benefit from it.Copyrights act similarly for creative works like b

45、ooks and films, granting the exclusive right to use the creation during and 70 years after the creator’s lifetime.,Subsidizing R&D and Education,Subsidizing research and developmentGovernments might perform research

46、 directly—like NASA and the National Institutes of Health—or subsidize researchers at institutions like universities.Similarly, they can provide tax-incentives to firms performing R&D.Subsidizing educationIn orde

47、r to perform research and development, workers need to be technically trained. If firms provide this training, they recoup the cost by paying workers lower wages, decreasing the incentive for workers to take such jobs.A

48、 solution to this is to have the government subsidize education, as it does in all high-income countries.,Joseph Schumpeter and Creative Destruction,Joseph Schumpeter was born in Austria in 1883, and grew up there before

49、 moving to the United States. Schumpeter developed a model of growth emphasizing his view that new products unleashed a “gale of creative destruction”.Example: The automobile replaced the horse-drawn carriage by serving

50、 better the needs of consumers. This “creation” “destroyed” carriage-makers and associated firms.To Schumpeter, the entrepreneur is central to economic growth; and the profits of entrepreneurs provide the incentive for

51、 bringing together the factors of production—labor, capital, and natural resources—in new ways.,Economic Growth in the United States,11.3,Discuss fluctuations in productivity growth in the United States.,Growth rates in

52、the United States were relatively modestprior to 1900.In the 20th century, firms and the U.S. government invested heavily in research and development, resulting in increasing growth rates.Growth rates remained high un

53、til the mid-1970s, when they fell unexpectedly, before picking up again in the mid-1990s.,Economic Growth in the United States,Average annual growth rates in real GDP per hour worked in the United States,Figure 11.5,What

54、 Caused the Productivity Slowdown of 1974-1995?,Some economists argue that there was not really a slowdown in economic growth—the appearance is a result of how we measure growth.From the 1970s, most growth in output cam

55、e in the form of services rather than goods. Improvements in services come mostly through quality differences, which are harder to measure for services than for goods.An alternative argument is that America concentrate

56、d more on quality-of-life issues, like health and safety, environmental regulations, and a change in educational focus.Other high-income countries experienced similarly timed slowdowns, suggesting that the United States

57、 was not doing something uniquely counterproductive over this time.,Is the U.S. Headed for Another Productivity Slowdown?,New technology has driven improvements in labor productivity from 1996-2012.Examples: faster data

58、 processing (computers etc.); better communication (cell phones, the internet)Some economists argue that changes in quality of services have been particularly important over the last decade and a half.So GDP growth ha

59、s understated the actual growth of the economy.But it may be that many of these gains are going toward improving consumer products rather than improving labor productivity.This casts doubt on the future of economic gr

60、owth in the U.S.,Why Isn’t the Whole World Rich?,11.4,Explain economic catch-up and discuss why many poor countries have not experienced rapid economic growth.,How Can We Predict Nations’ Growth Rates?,The economic growt

61、h model predicts that poor countries will grow faster than rich countries.This is because:The effect of additional capital is greater for countries with smaller capital stocksThere are greater advances in technology i

62、mmediately available to poorer countriesThis leads to a prediction of catch-up: that the level of GDP per capita (or income per capita) in poor countries will grow faster than in rich countries.,The catch-up predicted

63、by the economic growth model,Figure 11.6,Catch-Up among High Income Countries,Examining high-income countries, we see strong evidenceof the catch-up hypothesis.Countries that were richer in 1960, like the U.S. and Swit

64、zerland, experienced lower growth rates over the next decades than countries that were initially poorer, like Ireland, Singapore, and South Korea.,There has been catch-up among high-income countries,Figure 11.7,Catch-Up

65、among All Countries?,However if we extend the set of countries to all countries for which statistics are available, our catch-up model appears to be worthless.We need to address the failures of the catch-up model.,Most

66、of the world hasn’t been catching up,Figure 11.8,Other High-Income Countries vs. the U.S.,The blue bars show real GDP per capitain 1990 relative to the United States.The red bars show real GDP per capitain 2012 relati

67、ve to the United States.In each case, the red bar is lower; these countries are not catching up to the United States. Why?,Other high-income countries have stopped catching up to the United States,Figure 11.9,Why Are Hi

68、gh-Income Countries Not Catching the U.S.?,A combination of reasons explain this:U.S. labor markets are relatively flexible; hiring and firing workers is relatively unrestricted by government regulation.Similarly, Amer

69、ican workers tend to enter the work force sooner and retire later than do workers in Europe.The U.S. financial system is relatively efficient, and the high volume of trading ensures high liquidity, making the U.S. an at