Post on 31-Mar-2015
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Explanations for trade
Classical 2. Opportunity costs 3. Comparative advantage
Neo-classical 4. Production structure 5. Factor prices 6. Production volume 7. Factor abundance
1. The world economy
New trade 9. Imperfect competition 10. Intra-industry trade
Policy
8. Trade policy
11. Strategic trade policy
12. Int. trade organizations 13. Economic integration
17. Applied trade policy modeling
Economicgeography
New interactions 14. Geographical economics 15. Multinationals 16. New goods, growth, and development
Industrialorganization
Internationalbusiness
Growth theory
Part
IPa
rt I
IPa
rt I
IIP
art
IV
18. Concluding remarks
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
IntroductionInternational Trade & the World Economy; Charles van Marrewijk
Objectives / key terms
New goods Variety / quality
Kaldor's stylized facts Neo-classical growth model
Solow residual Endogenous growth model
Discount rate Geography experiment
Paul Romer (1955 - )
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Modeling new goods International Trade & the World Economy; Charles van Marrewijk
Number ofvarieties
quantity
q
Nt = 0 Nt = 1
The variety approach
variety
quality
1 2 3 4 5 9876 1413121110 1615
1
432
765
1098
1112
quality at t = 1quality at t = 0
Modeling new goods International Trade & the World Economy; Charles van Marrewijk
The quality approach
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Kaldor's stylized facts of economic growth International Trade & the World Economy; Charles van Marrewijk
Nicholas Kaldor (1961) suggested the following list of stylized facts:
• The continued growth in the aggregate volume of production and in the productivity of labor at a steady trend rate.
• A continued increase in the amount of capital per worker.
• A steady rate of profit on capital.
• Steady capital-output ratios over long periods.
• A steady investment coefficient, and a steady share of profits and wages.
Kaldor's stylized facts of economic growth International Trade & the World Economy; Charles van Marrewijk
a. USA GDP per capita, 1985 US $, logarthmic scale
6
7
8
9
10
1870 1890 1910 1930 1950 1970 1990
Kaldor's stylized facts of economic growth International Trade & the World Economy; Charles van Marrewijk
b. USA, gross investment (% of GDP)
0
10
20
30
1960 1965 1970 1975 1980 1985 1990 1995 2000
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENT International Trade & the World Economy; Charles van Marrewijk
The neo-classical model and the Solow residual International Trade & the World Economy; Charles van Marrewijk
0
1
2
3
0 5 10 15 20
capital-labor ratio k
tkn)(
E
G
F
tks
The neo-classical model and the Solow residual International Trade & the World Economy; Charles van Marrewijk
residualSolowLKYALKY ttt
increaseforcelabor
t
increasecapital
t
changetechnical
tt 'explained'
explainedbeto
~)1(
~~~~)1(
~~~
b. USA, actual growth and Solow residual (%)
-4
-2
0
2
4
6
1970 1975 1980 1985 1990 1995
Solow residual actual growth
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Empirical pictures International Trade & the World Economy; Charles van Marrewijk
6
7
8
9
10
1870 1890 1910 1930 1950 1970 1990
Australia
AustriaBelgium
Canada
a
6
7
8
9
10
1870 1890 1910 1930 1950 1970 1990
Italy
Norw ay
Netherlands
Japan
c
Empirical pictures International Trade & the World Economy; Charles van Marrewijk
5
6
7
8
9
1900 1930 1960 1990
Argentina
BrazilChile
Bangladesh
a
5
6
7
8
9
1900 1930 1960 1990
Taiw an
Philippines
Thailand
d
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Endogenous growth International Trade & the World Economy; Charles van Marrewijk
Paul Romer’s (1994) list of stylized facts:
• There are many firms in a market economy.
• Discoveries differ from other inputs in that many people can use them at the same time (nonrival goods).
• It is possible to replicate physical activities.
• Technological advance comes from things that people do.
• Many individuals and firms have market power and earn monopoly rents on discoveries.
Endogenous growth International Trade & the World Economy; Charles van Marrewijk
iallforxxxNNxY tit
mL
ttt
N
iitt
X
t
;
/
1)/1(
/1
1
Production function:
tt N
L)1( Operating profit for manufactures producer
Future profits discounted; profits erode if number of varieties increases
Inventing new variety represents fixed cost; with knowledge spillovers economy steadily grows forever; growth rate higher if:
• the labor force is higher (increasing returns to scale ensure that size is important)
• the fixed costs of investment F are lower, and
• the discount rate is lower.
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
An experiment in geographical economics International Trade & the World Economy; Charles van Marrewijk
Herfindahl index
0
0.1
0.2
0.3
0.4
0.5
0 200 400 600 800
Experiment w. 12 city racetrack; Herfindahl = measure of agglomeration
An experiment in geographical economics International Trade & the World Economy; Charles van Marrewijk
Evolution of the share of manufacturing
0
0.1
0.2
0.3
0.4
0.5
0 100 200 300 400 500 600 700 800
3
6
9
3
66
6
9
Introduction
Modeling new goods
Kaldor's stylized facts of economic growth
The neo-classical model and the Solow residual
Empirical pictures
Endogenous growth
An experiment in geographical economics
Conclusions
CHAPTER 16; NEW GOODS, GROWTH & DEVELOPMENTInternational Trade & the World Economy; Charles van Marrewijk
Conclusions International Trade & the World Economy; Charles van Marrewijk
Rising per capita income is relatively new phenomenon.
Some countries have experienced relatively steady growth, others long periods of stagnation and rapid increases.
Neo-classical model based on capital accumulation needs exogenous technological change to ‘explain’ growth; large Solow residual.
Endogenous growth models based on imperfect competition and innovation (new goods and/or quality improvements) led by entrepreneurs in search of profits.
Large swings in economic prosperity may be explained by geographical economics model.