November 18, 2009, 9:00 AM
What Makes a Nation Rich? One Economist's Big Answer
Say you're a world leader and you want your country's economy to prosper. According to this Clark Medal winner from MIT, there's a simple solution: start with free elections.
Read more: http://www.esquire.com/features/best-and-brightest-2009/world-poverty-map-1209#ixzz0XPLjfQ4G
What Makes a Nation Rich? One Economist's Big Answer
Showing posts with label economics growth theory. Show all posts
Showing posts with label economics growth theory. Show all posts
Friday, November 20, 2009
Wednesday, August 19, 2009
"How Wars, Plagues, and Urban Disease Propelled Europe’s Rise to Riches"
"This column explains why Europe’s rise to riches in the early modern period owed much to exceptionally bellicose international politics, urban overcrowding, and frequent epidemics."
Cruel windfall: How wars, plagues, and urban disease propelled Europe’s rise to riches, by Nico Voigtländer and Hans-Joachim Voth, Vox EU: In a pre-modern economy, incomes typically stagnate in the long run. Malthusian regimes are characterised by strongly declining marginal returns to labour. One-off improvements in technology can temporarily raise output per head. The additional income is spent on more (surviving) children, and population grows. As a result, output per head declines, and eventually labour productivity returns to its previous level. That is why, in HG Wells' phrase, earlier generations "spent the great gifts of science as rapidly as it got them in a mere insensate multiplication of the common life" (Wells, 1905).
How could an economy ever escape from this trap? To learn more about this question, we should look more closely at the continent that managed to overcome stagnation first. Long before growth accelerated for good in most countries, a first divergence occurred. European incomes by 1700 exceeded those in the rest of the world by a large margin. We explain the emergence of this income gap by a number of uniquely European features – an unusually high frequency of war, particularly unhealthy cities, and numerous deadly disease outbreaks.
Cruel windfall: How wars, plagues, and urban disease propelled Europe’s rise to riches, by Nico Voigtländer and Hans-Joachim Voth, Vox EU: In a pre-modern economy, incomes typically stagnate in the long run. Malthusian regimes are characterised by strongly declining marginal returns to labour. One-off improvements in technology can temporarily raise output per head. The additional income is spent on more (surviving) children, and population grows. As a result, output per head declines, and eventually labour productivity returns to its previous level. That is why, in HG Wells' phrase, earlier generations "spent the great gifts of science as rapidly as it got them in a mere insensate multiplication of the common life" (Wells, 1905).
How could an economy ever escape from this trap? To learn more about this question, we should look more closely at the continent that managed to overcome stagnation first. Long before growth accelerated for good in most countries, a first divergence occurred. European incomes by 1700 exceeded those in the rest of the world by a large margin. We explain the emergence of this income gap by a number of uniquely European features – an unusually high frequency of war, particularly unhealthy cities, and numerous deadly disease outbreaks.
Saturday, August 15, 2009
Sunday, July 19, 2009
Kaldor Facts
From Economist's View
The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital, by Charles I. Jones and Paul M. Romer, NBER WP 15094, June 2009 [open link]: 1. Introduction ...[I]t is easy to lose faith in scientific progress. ... In any assessment of progress, as in any analysis of macroeconomic variables, a long-run perspective helps us look past the short-run fluctuations and see the underlying trend. In 1961, Nicolas Kaldor stated six now famous “stylized” facts. He used them to summarize what economists had learned from their analysis of 20th-century growth and also to frame the research agenda going forward (Kaldor, 1961):
1. Labor productivity has grown at a sustained rate.
2. Capital per worker has also grown at a sustained rate.
3. The real interest rate or return on capital has been stable.
4. The ratio of capital to output has also been stable.
5. Capital and labor have captured stable shares of national income.
6. Among the fast growing countries of the world, there is an appreciable variation in the rate of growth “of the order of 2–5 percent.”
Redoing this exercise nearly 50 years later shows just how much progress we have made. Kaldor’s first five facts have moved from research papers to textbooks. There is no longer any interesting debate about the features that a model must contain to explain them. These features are embodied in one of the great successes of growth theory in the 1950s and 1960s, the neoclassical growth model. Today, researchers are now grappling with Kaldor’s sixth fact and have moved on to several others that we list below.
One might have imagined that the first round of growth theory clarified the deep foundational issues and that subsequent rounds filled in the details. This is not what we observe. The striking feature of the new stylized facts driving the research agenda today is how much more ambitious they are. Economists now expect that economic theory should inform our thinking about issues that we once ruled out of bounds as important but too difficult to capture in a formal model.
Here is a summary of our new list of stylized facts, to be discussed in more detail below:
1. Increases in the extent of the market. Increased flows of goods, ideas, finance, and people — via globalization as well as urbanization — have increased the extent of the market for all workers and consumers.
2. Accelerating growth. For thousands of years, growth in both population and per capita GDP has accelerated, rising from virtually zero to the relatively rapid rates observed in the last century.
3. Variation in modern growth rates. The variation in the rate of growth of per capita GDP increases with the distance from the technology frontier.
4. Large income and TFP differences. Differences in measured inputs explain less than half of the enormous cross country differences in per capita GDP.
5. Increases in human capital per worker. Human capital per worker is rising dramatically throughout the world.
6. Long-run stability of relative wages. The rising quantity of human capital relative to unskilled labor has not been matched by a sustained decline in its relative price.
In assessing the change since Kaldor developed his list, it is important to recognize that Kaldor himself was raising expectations relative to the initial neoclassical model of growth as outlined by Solow (1956) and Swan (1956). When the neoclassical model was being developed, a narrow focus on physical capital alone was no doubt a wise choice
The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital, by Charles I. Jones and Paul M. Romer, NBER WP 15094, June 2009 [open link]: 1. Introduction ...[I]t is easy to lose faith in scientific progress. ... In any assessment of progress, as in any analysis of macroeconomic variables, a long-run perspective helps us look past the short-run fluctuations and see the underlying trend. In 1961, Nicolas Kaldor stated six now famous “stylized” facts. He used them to summarize what economists had learned from their analysis of 20th-century growth and also to frame the research agenda going forward (Kaldor, 1961):
1. Labor productivity has grown at a sustained rate.
2. Capital per worker has also grown at a sustained rate.
3. The real interest rate or return on capital has been stable.
4. The ratio of capital to output has also been stable.
5. Capital and labor have captured stable shares of national income.
6. Among the fast growing countries of the world, there is an appreciable variation in the rate of growth “of the order of 2–5 percent.”
Redoing this exercise nearly 50 years later shows just how much progress we have made. Kaldor’s first five facts have moved from research papers to textbooks. There is no longer any interesting debate about the features that a model must contain to explain them. These features are embodied in one of the great successes of growth theory in the 1950s and 1960s, the neoclassical growth model. Today, researchers are now grappling with Kaldor’s sixth fact and have moved on to several others that we list below.
One might have imagined that the first round of growth theory clarified the deep foundational issues and that subsequent rounds filled in the details. This is not what we observe. The striking feature of the new stylized facts driving the research agenda today is how much more ambitious they are. Economists now expect that economic theory should inform our thinking about issues that we once ruled out of bounds as important but too difficult to capture in a formal model.
Here is a summary of our new list of stylized facts, to be discussed in more detail below:
1. Increases in the extent of the market. Increased flows of goods, ideas, finance, and people — via globalization as well as urbanization — have increased the extent of the market for all workers and consumers.
2. Accelerating growth. For thousands of years, growth in both population and per capita GDP has accelerated, rising from virtually zero to the relatively rapid rates observed in the last century.
3. Variation in modern growth rates. The variation in the rate of growth of per capita GDP increases with the distance from the technology frontier.
4. Large income and TFP differences. Differences in measured inputs explain less than half of the enormous cross country differences in per capita GDP.
5. Increases in human capital per worker. Human capital per worker is rising dramatically throughout the world.
6. Long-run stability of relative wages. The rising quantity of human capital relative to unskilled labor has not been matched by a sustained decline in its relative price.
In assessing the change since Kaldor developed his list, it is important to recognize that Kaldor himself was raising expectations relative to the initial neoclassical model of growth as outlined by Solow (1956) and Swan (1956). When the neoclassical model was being developed, a narrow focus on physical capital alone was no doubt a wise choice
Monday, June 1, 2009
David Warsh's Economic Principals
David Warsh, author of Knowledge and the Wealth of Nations, has a very intriguing blog. It is actually more of an online column dealing with contemporary economic issues. For example:
The View from the 23rd Century
People continue to try to find the horizon. The Economist last week warned that in seeking to assign new tasks to government, President Barack Obama risks stifling the dynamism of the American economy. Business Week began a series of contributed essays building towards a special issue in August, “The Case for Optimism.” In August, too, will appear In FED We Trust: Ben Bernanke’s War on the Great Panic– a book that may propel Wall Street Journal columnist David Wessel into a Bob Woodward-like role as a chronicler of US economic policy.
I turned briefly to two books that are directly influential in disseminating the recent changes in our view of growth: The Economics of Growth, by Philippe Aghion, of Harvard University, and Peter Howitt, of Brown; and Introduction to Modern Economic Growth, by Daron Acemoglu, of the Massachusetts Institute of Technology. Both are textbooks, the former intended for advanced undergraduates or beginning graduate students, the latter for graduate students well along in their training. Both contribute substantially to the professional debate. But neither is easy reading.
The current book that comes closest to communicating a modern view of growth, I think, is The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World, by Amar Bhidé, professor of business at Columbia University., Bhidé, who is not an economist, compares his method to the evidentiary proceedings of a common law trial: he interviews experts from many disciplines, and then makes up his mind. The last author to make a substantial contribution to this literature was AnnaLee Saxenian, author of The New Argonauts: Regional Advantage in a Global Economy. Her method was frankly journalistic, but she came back with the goods. So does Bhidé.
The burden of the argument of Venturesome Economy is that that an inevitable expansion is taking place in the quantity of high-level know-how that is being developed in countries around the world – not just Japan and Korea, but India and China, Israel and Australia. If the US learns to relax and take advantage of new knowledge developed offshore, everything will be fine. But if “technonationalism” gains the upper hand – in the form of, say, a commitment to a strong US automotive industry, no matter what the cost – then a world carved into trading spheres could experience slower growth than otherwise would be the case.
People continue to try to find the horizon. The Economist last week warned that in seeking to assign new tasks to government, President Barack Obama risks stifling the dynamism of the American economy. Business Week began a series of contributed essays building towards a special issue in August, “The Case for Optimism.” In August, too, will appear In FED We Trust: Ben Bernanke’s War on the Great Panic– a book that may propel Wall Street Journal columnist David Wessel into a Bob Woodward-like role as a chronicler of US economic policy.
I turned briefly to two books that are directly influential in disseminating the recent changes in our view of growth: The Economics of Growth, by Philippe Aghion, of Harvard University, and Peter Howitt, of Brown; and Introduction to Modern Economic Growth, by Daron Acemoglu, of the Massachusetts Institute of Technology. Both are textbooks, the former intended for advanced undergraduates or beginning graduate students, the latter for graduate students well along in their training. Both contribute substantially to the professional debate. But neither is easy reading.
The current book that comes closest to communicating a modern view of growth, I think, is The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World, by Amar Bhidé, professor of business at Columbia University., Bhidé, who is not an economist, compares his method to the evidentiary proceedings of a common law trial: he interviews experts from many disciplines, and then makes up his mind. The last author to make a substantial contribution to this literature was AnnaLee Saxenian, author of The New Argonauts: Regional Advantage in a Global Economy. Her method was frankly journalistic, but she came back with the goods. So does Bhidé.
The burden of the argument of Venturesome Economy is that that an inevitable expansion is taking place in the quantity of high-level know-how that is being developed in countries around the world – not just Japan and Korea, but India and China, Israel and Australia. If the US learns to relax and take advantage of new knowledge developed offshore, everything will be fine. But if “technonationalism” gains the upper hand – in the form of, say, a commitment to a strong US automotive industry, no matter what the cost – then a world carved into trading spheres could experience slower growth than otherwise would be the case.
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