Economics 216: The Macroeconomics of Development

1. Economics 216:The Macroeconomics of Development Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.) Kwoh-Ting Li Professor of Economic Development Department of Economics Stanford University Stanford, CA 94305-6072, U.S.A. Spring 2000-2001 Email: ljlau@stanford.edu; WebPages: http://www.stanford.edu/~ljlau

2. Review Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.) Kwoh-Ting Li Professor of Economic Development Department of Economics Stanford University Stanford, CA 94305-6072, U.S.A. Spring 2000-2001 Email: ljlau@stanford.edu; WebPages: http://www.stanford.edu/~ljlau

3. The Historical Experience of Economic Development • The characteristics of economic development • Demographic transition • Decline in mortality and morbidity • Rise in life expectancy • Decline in the fertility and birth rates • Sustained growth in real output per capita • Industrialization • Urbanization • Sustained rise in literacy and educational achievement • An equitable distribution of income Lawrence J. Lau, Stanford University

4. The Sources of Economic Growth • Measured Inputs • Tangible Capital • Labor • Human Capital • R&D Capital • Technical Progress • Intangible Capital (Human Capital, R&D Capital, Goodwill (Advertising and Market Development), Information System, Software, etc.) • Other Omitted and Unmeasured Inputs (Land, Natural Resources, Water Resources, Environment, etc.) • Improvements in Technical and Allocative Efficiency • The traditional growth-accounting formula • The sources of economic growth in developed and developing countries Lawrence J. Lau, Stanford University

5. Cross-Country Growth Regressions • Concepts of convergence • Absolute convergence of real GDP per capita • Conditional convergence of real GDP per capita • Convergence in technology Lawrence J. Lau, Stanford University

6. Models of Economic Development • Two-Gap Models • Savings gap • Foreign exchange gap • Two-Sector Models • Dual Economy Models with and without Surplus Labor Lawrence J. Lau, Stanford University

7. Savings and Capital Accumulation • The relationship among savings rate, capital accumulation, and the level and rate of growth of real GDP per capita • Determinants of savings • Savings and investment Lawrence J. Lau, Stanford University

8. The Role of Money and Finance • The “Quantity Theory of Money”: MV=PT • Inflation and money supply • The velocity of circulation of money and economic development • The role of financial intermediation • Evolution of long-term capital markets Lawrence J. Lau, Stanford University

9. Stabilization in Closed and Open Economies • Insufficient aggregate demand • Excess aggregate demand • Inflation and taxation • Current and capital account balance • Exchange rate policy • The causes of the East Asian currency crisis • Lessons from the East Asian currency crisis Lawrence J. Lau, Stanford University

10. Development Policies and Strategies • Big Push versus Balanced Growth • Export Promotion versus Import Substitution • The infant industry argument • Central Planning versus Market • The role of foreign capital Lawrence J. Lau, Stanford University

11. Human Capital, Intangible Capital, and Infrastructural Capital • The distinction between social and private rates of return • Appropriability • Network externalities • Justification for public investments and/or subsidies Lawrence J. Lau, Stanford University

12. Endogenous Economic Growth • Technical progress as the outcome of purposive activity • Motivation is possibility of monopoly profit • Technological increasing returns to scale and market increasing returns to scale • Increasing or constant returns to knowledge capital at the microeconomic level is neither necessary nor sufficient for increasing returns to scale at the macroeconomic level in knowledge capital, tangible capital and labor Lawrence J. Lau, Stanford University

13. Numerical General Equilibrium Models • General Equilibrium Models of the Economy • Applied (Computable) General Equilibrium (CGE) Models • Determination of the Parameters • Calibration versus Econometric Estimation • Solution • Welfare Analysis • Sensitivity Analysis Lawrence J. Lau, Stanford University