Macro16TheTheoryofEconomicGrowth(II)宏观经济学(南开大学,龚刚).ppt

Macroeconomics,Lecture 16 The Theory of Economic Growth (II),Introduction,The objective to introduce you the new growth theory in modern economics. back to the convergence hypothesis. to discuss the policy issue in economic growth.,Introduction,Recent developments in growth theory Endogenizing the saving ratio by introducing household optimization behavior Endogenizing the technology. Two basic approaches to express technology human capital approach (Lucas Model) knowledge capital approach (Romer Model),Human capital model,The basic feature Express technology At as a human capital. What is the human capital An individuals human capital is simply his general skill (or knowledge) level. It reflects the individuals quality.,Human capital model,Accumulation of human capital An individuals human capital can be improved by education, health improvement among others. The Lucas equation on the human capital accumulation ht = ht-1(1-ut-1) (A) where h is an individuals human capital level; u the proportion of the time that the individual uses for accumulating his human capital (education).,Human capital model,Some theoretical propositions regarding human capital External effect of human capital: suitability Income distribution effect Continuality (indicating education should start with infant) Creating, using, understanding technology need human capital.,Human capital model,Some theoretical propositions regarding human capital (continued) The return on human capital investment Generally, 30%, much higher than in fixed capital. The rate of return will be reduced with the increase in age (also indicating education should start with infant?). Long term investment (we shall start to work now!) More uncertain or risky from individual family point of view (indicating difficult to obtain loan from the commercial bank).,Human capital model,Aggregate production function Quantifying the human capital (Lucas 1988) According to Lucas (1988), a worker with human capital h(t) is the productive equivalent of two workers with 0.5h(t) each, or a half-time worker with 2h(t) .,Human capital model,Aggregate production function (continued) Quantifying the human capital (continued) Let L be the number of individuals with skill level h. We can denote L as L(h). Suppose these individuals spends u(h) proportion of their non leisure time to work (or production), and remaining 1-u(h) to human capital accumulation, then their effective labor effort in production is u(h)L(h)h.,Human capital model,Aggregate production function (continued) Quantifying the human capital (continued) Now consider all the workers in the economy with different skills, the total effective labor effort in production, denoted as N, can be written as,Human capital model,Aggregate production function (continued) Quantifying the human capital (continued) Identical assumption (representative agent model): All workers have a skill level h and spend the same proportion u to work. Under the identical assumption, we then have N=uhL,Human capital model,Aggregate production function (continued) The production function (continued) Y = aK(uLh)1-h where h reflects the external effect of human capital and the change of h follows (A).,Knowledge capital model,The basic feature Express technology At as a knowledge capital. What is the knowledge capital? The store of books, journals, software, design, patents and so on.,Knowledge capital model,The general property of the knowledge: rivalry and excludability A product is rival if its use by one firm will preclude the use by another. A product is excludable if the owner can prevent others from using it. Conventional goods are both rival and excludable.,Knowledge capital model,The general property of the knowledge (continued) Human capital is both rival and excludable. Public goods are usually both non-rival non-excludable. Therefore, it seems that rivalry and excludability are closely linked.,Knowledge capital model,The general property of the knowledge (continued) However, technology (expressed as knowledge here) as a product is non-rival, yet (partially) excludable. The knowledge published in journals, book, etc. is generally non-excludable. The knowledge protected by patent system or by firm (keeping as a technology secret ) could be excludable. Incentive issue,Knowledge capital model,Accumulation of knowledge capital Knowledge capital is accumulated through research and development (R&D), i.e., the innovation. The Romer equation on the knowledge capital accumulation: At = At-1HA,t-1 (B) where A is the new created knowledge, HA is the human capital working on R&D.,Knowledge capital model,Accumulation of knowledge capital Remark: understanding, using and creating knowledge must go through the person with certain level of human capital. This indeed provides the connection between human capital approach and knowledge capital approach to economic growth.,Knowledge capital model,Aggregate production function with knowledge capital The production function Y=(H-HA)LA+ K1- where H is the total human capital, and therefore (H-HA) is the total human capital engaged in production rather than in research. Remark: the determination of A, the knowledge capital follows (B).,Back to the convergence hypothesis,Implication from Romer and Lucas model The growth in per capita GDP is caused by the technical progress, which can be explained by accumulation either of human capital or of knowledge capital. Yet, it still cannot explain the convergence hypothesis, since both model indicates a constant growth rate in technology and hence in per capital GDP at the steady state.,Back to the convergence hypothesis,The non-linearity in technical progress Jones modification,Back to the convergence hypothesis,The non-linearity in technical progress (continued) Gong, Greiner and Semmlers modification,Back to the convergence hypothesis,Why non-linearity? Easy technology will often be first found out.,Back to the convergence hypothesis,The implication from the non-linearity in technical progress The growth rate in technology will decline with the progress in technology. This may provide some explanation to the convergence hypothesis. However, this explanation may be only considered from the supply side of economy. Can this be applied to China? (will be discussed later).,Macroeconomic Policy and Economic Growth,The traditional way to understand the objectives of macroeconomic policy Demand management; Deal with the business cycles; Short run issue, nothing related to growth, nothing related to supply side of the economy.,Macroeconomic Policy and Economic Growth,A question for policy consideration in less developed countries to promote economic growth For a less developed country, higher growth should be considered as a policy objective by government in order to catch up the developed countries (or to be included in the convergence) .,Macroeconomic Policy and Economic Growth,A question (continued) We have known that a higher growth in GDP not only requires a higher growth in demand, but also a higher growth in supply or the production capacity of the economy. From policy point of view, we do have a demand management. Yet can the market mechanism and demand management policy create sufficient supply to meet the growth objective?,Macroeconomic Policy and Economic Growth,A question (continued) If yes, the macroeconomic policy does not have to consider the supply side of the economy. Otherwise, the macroeconomic policy may also include the supply promotion as an objective.,Macroeconomic Policy and Economic Growth,Supply promotion as a macroeconomic policy? The determination (or composition) of supply labor (quantity and quality, human capital) fixed capital technology other resources (land, etc.),Macroeconomic Policy and Economic Growth,Supply promotion as a macroeconomic policy? (continued) How is supply created? Among these components (determinants), fixed capitalwhose creation is made by investmentcan be managed by the Keynesian type of macroeconomic policy. Quantity of labor and land are purely exogenous. But how about technology (knowledge capital and human capital)?,Macroeconomic Policy and Economic Growth,Supply pro