Bài giảng Macroeconomics - Chapter 14: Economic Growth

Chapter 14: Economic GrowthShow how small differences in growth rates lead to large differences in living standardsExplain why GDP per capita is average labor productivity times the proportion of the population employedDiscuss the determinants of average labor productivityDiscuss and evaluate government policies that promote economic growthCompare and contrast the benefits and costs of economic growthDescribe the trade-offs between economic growth and environmental qualityLiving StandardsUse an economic model to study the remarkable rise in living standardsReal GDP per person is a measure of the goods available to a typical personOne clue to growing prosperity in the 20th century – GDP per person today is five times greater than it was in 1929Comparisons across long periods are complicated by lack of dataThe variety, quantity, and quality of goods increased enormously in the 19th and 20th centuryCompound InterestDifferences in interest rates matterGrowth rates in GDP per capita have the same effect as interest ratesRelatively small growth in GDP per capita has a very large effect over a long periodIn the long run, the growth rate of an economy mattersInterest Rate (%)Value of $10 after 210 years2 $639.794 $37,757.336 $2,061,729.60Compound interest pays interest on the original deposit and all previously accumulated interestReal GDP per CapitaNotationY = real GDPN = number of people employedPOP = populationGDP per capita is the product of output per worker and the share of the total population that is workingConsumption per person depends onHow much each worker produces andThe share of people workingAverage Labor ProductivityUS average labor productivity is24 times that of Indonesia100 times that of BangladeshSix factors determine average labor productivityHuman capitalPhysical capitalLand and other natural resourcesTechnologyEntrepreneurship and managementPolitical and legal environmentSix factors determine average labor productivity:1. Human CapitalHuman capital comprises the talents, education, training, and skills of workersHuman capital increases workers' productivityGermany and Japan used human capital to rebuild after World War IIProfessional scientists and engineersApprentice and on-the-job training emphasizedJapanese increased emphasis on early educationCost – Benefit Principle applies to building human capitalPremium paid to skilled workers 2. Physical CapitalMore and better capital increases worker productivityFactory owner employs two people and adds capitalEach machine requires one dedicated operatorMore capital increases output per hourDiminishing returns to capitalNumber of MachinesOutput per WeekHours Worked per WeekOutput per Hour Worked016,00080200132,00080400240,00080500340,000805003. Land and Other Natural ResourcesInputs other than capital increase worker productivityLand for farmingFarmers are less than 3% of the population and they supply the US and export the surplusManufacturing requires raw materials and energyResources can be obtained through international marketsJapan, Hong Kong, Singapore and Switzerland have high levels of GDP per capita with a limited resource base4. TechnologyNew technologies are the single most important source of productivity improvementTechnical change can affect industries beyond the primary applicationTransportation expanded markets for farm produceMedicine, communications, electronics & computers5. Entrepreneurship and ManagementEntrepreneurs create new economic enterprisesEssential to a dynamic, healthy, growing economyPolicies should channel entrepreneurship in productive ways6. Political and Legal EnvironmentEncourage people to be economically productiveWell-defined property rights are essentialWho owns what and how those things can be usedReliable recourse through courtsMaintain political stabilityPromote free and open exchange of ideasPromote Growth with Human CapitalGovernments support education and training programsUS public education support extends from kindergarten through institutions of higher learningHead Start program for pre-school childrenJob training and retraining programsGovernment pays because education has externalitiesA democracy works better with educated votersProgressive taxes capture some of the higher incomeIncreases chances of technical innovationPoor families could not payPromote Growth with Savings and InvestmentGovernment policies can encourage new capital formation and saving in the private sectorIndividual Retirement Accounts (IRAs) are an incentive for individuals to saveGovernment periodically offers investment tax creditsGovernment can invest directly in capital formationConstruction of infrastructure such as roads, bridges, airports, and damsUS interstate highway system reduced costs of transporting goods, making markets more efficientPromote Growth with R & D SupportResearch and development promotes innovationSome types of research, such as basic science, create externalities that a private firm cannot captureSilicon chipFund basic science with National Science Foundation (NSF) and other government grantsGovernment sponsors research for military and space applicationsGovernment owns GPS satellitesMaintain political and legal framework to support growthPromoting Economic Growth in Least DevelopedPrescription for more human and physical capital is broadly correctAppropriate technology and educationMost countries need institutions to support growthCorruption creates uncertainty about property rights and drains financial resources out of the countryRegulation discourages entrepreneurshipTaxes discourage risk-takingMarkets do not function efficientlyLack of political stability discourages foreign investmentLimits to GrowthCan growth be sustained?Depletion of some natural resourcesEnvironmental damage and global warmingComputer models suggested growth is not sustainableDid not adequately treat new and better productsGreater income can pay for better environmental qualityIgnored the market's response to increasing scarcityHigh prices trigger a responseStrong response to energy crisis in mid 1970sGovernment action needed in case of externalities