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Explaining modern growth

Explaining modern growth. It’s human capital…. Some figures. Last millennium: World population growth = 22-fold Income per capita growth = 13-fold World GDP growth = 300-fold 1000-1820 Income per capita growth = 50% Life expectancy = 24 years 1820 onwards:

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Explaining modern growth

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  1. Explaining modern growth It’s human capital….

  2. Some figures • Last millennium: • World population growth = 22-fold • Income per capita growth = 13-fold • World GDP growth = 300-fold • 1000-1820 • Income per capita growth = 50% • Life expectancy = 24 years • 1820 onwards: • Income per capita growth = 8-fold • Life expectancy now = 66 years

  3. No consensus • Economic growth models have attempted to explain the change in growth rates but no consensus has emerged.

  4. Regularities – modern times • Per capita output grows over time and its growth rate does not tend to diminish • Physical capital per worker grows over time • The shares of labor and physical capital in national income are nearly constant • The growth rate of output per worker differs substantially across countries.

  5. Divergence • Modern economic growth: • Divergence in relative productivity levels and living standards. • In the last century: income in the “less” developed countries have fallen far behind those in “developed” countries. • Developed countries: • Strong convergence in per capita incomes within these countries • No obvious acceleration of overall growth rates over time.

  6. What we see in the data • Variability of growth rates over time • Variability of growth rates between countries • Convergence in richer countries

  7. Growth rates over time

  8. Growth between countries

  9. Convergence club

  10. Making a miracle by Lucas GDP per capita growth (1960-2000) Philippines: 62% South Korea: 1200% GDP per capita growth, annual rate (1960-2000) Philippines: 1.2% South Korea: 6.6%

  11. East Asian miracle • Features • Large exporters of manufactured goods of increasing sophistication. • Highly urbanized and increasingly well-educated. • High savings rates. • Pro-business governments.

  12. Human capital • The main engine of growth • Main source of differences in living standards among nations. • Physical capital plays an essential but subsidiary role. • Expansion of the definition of HK: not only formal education but on the job.

  13. Lucas’ contribution • Human capital: additional input in production • Labor force can accumulate human capital • Accumulation of human capital involves a sacrifice of current utility

  14. Why isn’t the whole world developed? By Easterlin • Spread of economic growth depended on the diffusion of knowledge of new production techniques. • Acquisition of knowledge closely associated with formal schooling. • The expansion and establishment of formal schooling has depended in large part on political conditions and ideological influences. • Since WWII, modern education systems have been established almost everywhere => spread of modern economic growth accelerated.

  15. Slow spread of economic growth • Why has technological change been limited to so few nations? • Transfer of technology as an educational process: • Teachers’ side: readily access to new technology. • Students’ side: no native differences among nations in the native intelligence of their populations. • Problem: different incentives for learning.

  16. Growth and schooling • The more schooling, the easier to master new technological knowledge. • Significant increases in formal schooling => improvement in the incentive structure.

  17. Primary enrolment per 10,000

  18. Education and growth • More advanced nations educationally developed first. • Cause-effect: effect of education on economic growth or vice-versa?

  19. The political economy of growth • Political roots to mass education • Colonialism • Monarchical rule • Catholic Church

  20. Conclusions and predictions • Expansion of formal schooling: • positive shift in the incentive structure • Commitment to mass education: • Symptom of major shift in political power • Greater social mobility • Once developing countries complete their demographic transition: long-term per capita growth as high as in developed countries.

  21. Easterlin’s contributions • Three aspects of knowledge facilitate growth • new knowledge is complementary to existing knowledge. • knowledge is non-rival. • knowledge is only partially excludable.

  22. Data Source: World Development Indicators.

  23. Data

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