ch5.ppt

Macroeconomics Chapter 5 Conditional Convergence in Practice Growth rate of capital per worker, ?k/k: ?k/k= ?[ k(0) , k*] (?) (+) y= A· f(k) Growth rate of real GDP per worker is a function of initial and steady-state real GDP per worker ? y/y= ?[ y(0) , y*] (?) (+) Conditional Convergence in Practice Conditional Convergence in Practice Variables that influence y* that are held constant. A measure of the saving rate The fertility rate Subjective measures of maintenance of the rule of law and democracy The size of government The extent of international openness, measured by the volume of exports and imports Changes in the terms of trade Measures of investment in education and health The average rate of inflation Conditional Convergence in Practice Japan and Germany after 2nd world war. East Asia countries African Countries Long-Run Economic Growth Solow model, the growth rate of capital per worker, k, is given by ?k/k= s· (y/k) ? sδ ? n Long-Run Economic Growth A case in which capital broadly defined to include human and infrastructure capital is the only factor input to production. AK model y= Ak Long-Run Economic Growth k – capital per worker y/k= A ?k/k= sA? sδ ? n Long-Run Economic Growth Long-Run Economic Growth Conclusions The long-run growth rate of capital per worker, ?k/k, is greater than zero and equal to sA? sδ ? n Growth rates of capital and real GDP per worker, ?k/k and ?y/y, do not change as capital and real GDP per worker, k and y, rise. poor economies with low k and y do not tend to grow faster than rich economies Long-Run Economic Growth The regular process of improvement in technology is called technological progress. exogenous technological progress - the improvements in technology were not explained within the model. ?A/A= g Long-Run Economic Growth Exogenous Technological Progress ?Y/Y= ?A/A+α·(?K/K)+(1?α)·(?L/ L) Using ?A/A= g and and ?L/L = n ?Y/Y= g+ α·(?K/ K) + (1