Chapter Two ROOTS AND BRANCHES Chapter 2 Traces the history of economic growth theory Begins with...

Chapter TwoChapter Two

ROOTS AND BRANCHESROOTS AND BRANCHES

Chapter 2Chapter 2

Traces the Traces the historyhistory of economic growth of economic growth theorytheory

Begins with Adam Smith who started it Begins with Adam Smith who started it allall

Shows how Smith’s theory evolved, and Shows how Smith’s theory evolved, and culminated in the Harrod-Domar model culminated in the Harrod-Domar model

Explains why Solow rebelled against Explains why Solow rebelled against classical growth theory … classical growth theory …

… … and why and how endogenous-growth and why and how endogenous-growth theory came abouttheory came about

Outline

Roots and BranchesRoots and Branches

The proximate causes of economic growth are the The proximate causes of economic growth are the effort to economize, the accumulation of knowledge, effort to economize, the accumulation of knowledge, and the accumulation of capital.and the accumulation of capital.

ARTHUR LEWISARTHUR LEWIS

To change the rate of growth of real output per head To change the rate of growth of real output per head you have to change the rate of technical progress.you have to change the rate of technical progress.

ROBERT SOLOWROBERT SOLOW

The proximate causes of economic growth are the The proximate causes of economic growth are the effort to economize, the accumulation of knowledge, effort to economize, the accumulation of knowledge, and the accumulation of capital.and the accumulation of capital.

ARTHUR LEWISARTHUR LEWIS

To change the rate of growth of real output per head To change the rate of growth of real output per head you have to change the rate of technical progress.you have to change the rate of technical progress.

ROBERT SOLOWROBERT SOLOW

The first revolution: The first revolution: Adam SmithAdam Smith

Theory of wealth Theory of wealth creation, public creation, public policy, and policy, and economic growtheconomic growth

Theory of wealth Theory of wealth creation, public creation, public policy, and policy, and economic growtheconomic growth

SavingSaving and and investmentinvestment are are by-products by-products and precursors and precursors of domestic of domestic and foreign and foreign tradetrade

SavingSaving and and investmentinvestment are are by-products by-products and precursors and precursors of domestic of domestic and foreign and foreign tradetrade

size of the marketsize of the marketsize of the marketsize of the market

division of labourdivision of labourdivision of labourdivision of labour

efficiencyefficiencyefficiencyefficiency

The first revolution:The first revolution:Adam SmithAdam Smith

Saving and investment stimulate Saving and investment stimulate growthgrowth

direct effects through direct effects through accumulationaccumulationof capitalof capital

indirect effects through indirect effects through labour labour productivityproductivity

further indirect effects through further indirect effects through interaction with interaction with exchange and exchange and trade, trade, through foreign investmentthrough foreign investment

domestic marketdomestic market can take the place can take the place of foreign marketsof foreign markets

Saving and investment stimulate Saving and investment stimulate growthgrowth

direct effects through direct effects through accumulationaccumulationof capitalof capital

indirect effects through indirect effects through labour labour productivityproductivity

further indirect effects through further indirect effects through interaction with interaction with exchange and exchange and trade, trade, through foreign investmentthrough foreign investment

domestic marketdomestic market can take the place can take the place of foreign marketsof foreign markets

The first revolution: The first revolution: Adam SmithAdam Smith

Smith’s reference to ‘Smith’s reference to ‘private private misconductmisconduct’ and the ‘’ and the ‘publick publick extravaganceextravagance of government’ of government’

Distinction between Distinction between quantity quantity and and qualityquality

Mutual advantages of Mutual advantages of tradetrade and and growth, growth, links to links to geographygeography

Smith’s reference to ‘Smith’s reference to ‘private private misconductmisconduct’ and the ‘’ and the ‘publick publick extravaganceextravagance of government’ of government’

Distinction between Distinction between quantity quantity and and qualityquality

Mutual advantages of Mutual advantages of tradetrade and and growth, growth, links to links to geographygeography


Benefits from division of labourBenefits from division of labourBenefits from division of labourBenefits from division of labour

If If specializationspecialization increases efficiency increases efficiencyand wealth and, thereby, economicand wealth and, thereby, economicgrowth, then ...growth, then ...

If If specializationspecialization increases efficiency increases efficiencyand wealth and, thereby, economicand wealth and, thereby, economicgrowth, then ...growth, then ...

... just about ... just about anythinganything that increases that increases efficiencyefficiency by the same amount, other things by the same amount, other things being equal, should be expected to have the being equal, should be expected to have the same effect on growth.same effect on growth.

... just about ... just about anythinganything that increases that increases efficiencyefficiency by the same amount, other things by the same amount, other things being equal, should be expected to have the being equal, should be expected to have the same effect on growth.same effect on growth.


Benefits from division of labourBenefits from division of labourBenefits from division of labourBenefits from division of labour

The effort to economizeThe effort to economizeThe effort to economizeThe effort to economize

... all... all other equivalent means of other equivalent means of increasing the increasing the efficiency efficiency oror quality quality of labour, capital, and land should be of labour, capital, and land should be expected to affect economic growth in the expected to affect economic growth in the same way.same way.

... all... all other equivalent means of other equivalent means of increasing the increasing the efficiency efficiency oror quality quality of labour, capital, and land should be of labour, capital, and land should be expected to affect economic growth in the expected to affect economic growth in the same way.same way.

So, if So, if foreign tradeforeign trade enlarges the enlarges themarket and thus facilitates further market and thus facilitates further division of labour à la Smith, thereby division of labour à la Smith, thereby increasing wealth and growth, then ...increasing wealth and growth, then ...

So, if So, if foreign tradeforeign trade enlarges the enlarges themarket and thus facilitates further market and thus facilitates further division of labour à la Smith, thereby division of labour à la Smith, thereby increasing wealth and growth, then ...increasing wealth and growth, then ...

Arthur Lewis


Smith on education, efficiency, and growthSmith on education, efficiency, and growth

Distinction between the Distinction between the quantity quantity andand quality quality of of labour labour education, by increasing labour education, by increasing labour productivity, increases also efficiency and productivity, increases also efficiency and growthgrowth

Smith feared the economic, political, and social Smith feared the economic, political, and social consequences of consequences of inferior educationinferior education among the among the massesmasses

He favoured He favoured public supportpublic support for education for education

Smith on education, efficiency, and growthSmith on education, efficiency, and growth

Distinction between the Distinction between the quantity quantity andand quality quality of of labour labour education, by increasing labour education, by increasing labour productivity, increases also efficiency and productivity, increases also efficiency and growthgrowth

Smith feared the economic, political, and social Smith feared the economic, political, and social consequences of consequences of inferior educationinferior education among the among the massesmasses

He favoured He favoured public supportpublic support for education for education

The first revolution:The first revolution:Adam Smith - Summing upAdam Smith - Summing up

Economic growth = increase in the Economic growth = increase in the quantity and quality of the three quantity and quality of the three main factors of production: main factors of production: labourlabour, , capitalcapital, and , and landland

Growth accountingGrowth accounting is based on this is based on this classificationclassification

Two shortcomings:Two shortcomings:

quantity of quantity of landland

increase in the increase in the labour forcelabour force does not does not

reallyreally

count as a source of economic growthcount as a source of economic growth

Economic growth = increase in the Economic growth = increase in the quantity and quality of the three quantity and quality of the three main factors of production: main factors of production: labourlabour, , capitalcapital, and , and landland

Growth accountingGrowth accounting is based on this is based on this classificationclassification

Two shortcomings:Two shortcomings:

quantity of quantity of landland

increase in the increase in the labour forcelabour force does not does not

reallyreally

count as a source of economic growthcount as a source of economic growth

Adam Smith’s followersAdam Smith’s followers

Distribution of wealth and foreign Distribution of wealth and foreign tradetradeDistribution of wealth and foreign Distribution of wealth and foreign tradetrade

David RicardoDavid RicardoDavid RicardoDavid Ricardo

Thomas MalthusThomas MalthusThomas MalthusThomas Malthus

Question of populationQuestion of populationQuestion of populationQuestion of population


John Stuart MillJohn Stuart Mill

rejected Malthus’s prediction rejected Malthus’s prediction that population would that population would outgrow productive capacityoutgrow productive capacity

more and better education more and better education would restrain population would restrain population growthgrowth

distribution a different matter distribution a different matter than production but can be than production but can be changed through policychanged through policy

John Stuart MillJohn Stuart Mill

rejected Malthus’s prediction rejected Malthus’s prediction that population would that population would outgrow productive capacityoutgrow productive capacity

more and better education more and better education would restrain population would restrain population growthgrowth

distribution a different matter distribution a different matter than production but can be than production but can be changed through policychanged through policy


Karl MarxKarl Marx

Economic mechanisms Economic mechanisms driving production and driving production and distribution are closely distribution are closely relatedrelated

The limits to growth observed The limits to growth observed by Malthus are inescapable by Malthus are inescapable ‘technological ‘technological unemployment’unemployment’

Karl MarxKarl Marx

Economic mechanisms Economic mechanisms driving production and driving production and distribution are closely distribution are closely relatedrelated

The limits to growth observed The limits to growth observed by Malthus are inescapable by Malthus are inescapable ‘technological ‘technological unemployment’unemployment’


Alfred MarshallAlfred Marshall

organizationorganization as a fourth factor of as a fourth factor of productionproduction

made explicit the connection made explicit the connection between between educationeducation and growth and growth

distributiondistribution of income and wealth of income and wealth matters for efficiency and growthmatters for efficiency and growth

Alfred MarshallAlfred Marshall

organizationorganization as a fourth factor of as a fourth factor of productionproduction

made explicit the connection made explicit the connection between between educationeducation and growth and growth

distributiondistribution of income and wealth of income and wealth matters for efficiency and growthmatters for efficiency and growth

‘‘Knowledge is our most powerful engine Knowledge is our most powerful engine of production ... Organization aids of production ... Organization aids knowledge’knowledge’


Joseph SchumpeterJoseph Schumpetertechnology through technology through inventioninvention, , innovationinnovation, and , and entrepreneurshipentrepreneurship

rent-seekers motivated by monopoly rent-seekers motivated by monopoly profitsprofits

perfectly competitive markets … may not perfectly competitive markets … may not be very conducive to economic growthbe very conducive to economic growth

No rent to capture under perfect No rent to capture under perfect competitioncompetition

Static efficiency does not go along with Static efficiency does not go along with dynamic efficiency, but ...dynamic efficiency, but ...

Joseph SchumpeterJoseph Schumpetertechnology through technology through inventioninvention, , innovationinnovation, and , and entrepreneurshipentrepreneurship

rent-seekers motivated by monopoly rent-seekers motivated by monopoly profitsprofits

perfectly competitive markets … may not perfectly competitive markets … may not be very conducive to economic growthbe very conducive to economic growth

No rent to capture under perfect No rent to capture under perfect competitioncompetition

Static efficiency does not go along with Static efficiency does not go along with dynamic efficiency, but ...dynamic efficiency, but ...


John Maynard KeynesJohn Maynard KeynesJohn Maynard KeynesJohn Maynard Keynes

Accumulation of capitalAccumulation of capital

‘‘Science and technical inventions’Science and technical inventions’

‘I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years.’

Enter mathematics: Enter mathematics: Harrod and DomarHarrod and Domar

Paul Samuelson’sPaul Samuelson’s

Foundations of Economic AnalysisFoundations of Economic Analysis (1948)(1948)laid the basis for mathematical economics, including laid the basis for mathematical economics, including

the modelling of ...the modelling of ...

... dynamic interactions among macroeconomic ... dynamic interactions among macroeconomic variablesvariables

Paul Samuelson’sPaul Samuelson’s

Foundations of Economic AnalysisFoundations of Economic Analysis (1948)(1948)laid the basis for mathematical economics, including laid the basis for mathematical economics, including

the modelling of ...the modelling of ...

... dynamic interactions among macroeconomic ... dynamic interactions among macroeconomic variablesvariables

New lines of thought New lines of thought


Net investment equals the increase in the capital stockNet investment equals the increase in the capital stockNet investment equals the increase in the capital stockNet investment equals the increase in the capital stock

… … net of depreciation due to net of depreciation due to physicalphysical or or economiceconomic wear and tear wear and tear… … net of depreciation due to net of depreciation due to physicalphysical or or economiceconomic wear and tear wear and tear

High level of investment entails High level of investment entails an increasing level of the capital an increasing level of the capital stockstock

High level of investment entails High level of investment entails an increasing level of the capital an increasing level of the capital stockstockHigh levels of saving and investment are good for High levels of saving and investment are good for growth even if they are stationary, that is, not growth even if they are stationary, that is, not increasingincreasing

High levels of saving and investment are good for High levels of saving and investment are good for growth even if they are stationary, that is, not growth even if they are stationary, that is, not increasingincreasingBy continuously augmenting the capital By continuously augmenting the capital stock ...stock ...By continuously augmenting the capital By continuously augmenting the capital stock ...stock ...

… … even even stationarystationary levels of saving and levels of saving and investment relative to output drive output investment relative to output drive output higher and higherhigher and higher, thus generating , thus generating economic growtheconomic growth

… … even even stationarystationary levels of saving and levels of saving and investment relative to output drive output investment relative to output drive output higher and higherhigher and higher, thus generating , thus generating economic growtheconomic growth


Efficiency is crucial for growthEfficiency is crucial for growthEfficiency is crucial for growthEfficiency is crucial for growth

High level of efficiency stimulates growth High level of efficiency stimulates growth by ...by ...High level of efficiency stimulates growth High level of efficiency stimulates growth by ...by ...

… … amplifying the effects of a given level of amplifying the effects of a given level of saving and investment on the rate of growth of saving and investment on the rate of growth of outputoutput

… … amplifying the effects of a given level of amplifying the effects of a given level of saving and investment on the rate of growth of saving and investment on the rate of growth of outputoutput

All that is required is a steady All that is required is a steady accumulation of capital through accumulation of capital through saving and investmentsaving and investment

All that is required is a steady All that is required is a steady accumulation of capital through accumulation of capital through saving and investmentsaving and investment

A given level of efficiency, including the A given level of efficiency, including the state of technology will, then translate state of technology will, then translate the capital accumulation into economic the capital accumulation into economic growthgrowth

A given level of efficiency, including the A given level of efficiency, including the state of technology will, then translate state of technology will, then translate the capital accumulation into economic the capital accumulation into economic growthgrowth


HarrodHarrod and and Domar Domar expressed the expressed the dynamic relationshipdynamic relationship between between saving, efficiency, and growth in a saving, efficiency, and growth in a simple equation which ...simple equation which ...

HarrodHarrod and and Domar Domar expressed the expressed the dynamic relationshipdynamic relationship between between saving, efficiency, and growth in a saving, efficiency, and growth in a simple equation which ...simple equation which ...

The Harrod-Domar model The Harrod-Domar model The Harrod-Domar model The Harrod-Domar model

... neatly formalized, simplified, and ... neatly formalized, simplified, and summarized the essence of almost 200 summarized the essence of almost 200

years’ theorizing about economic growthyears’ theorizing about economic growth

... neatly formalized, simplified, and ... neatly formalized, simplified, and summarized the essence of almost 200 summarized the essence of almost 200

years’ theorizing about economic growthyears’ theorizing about economic growth

The Harrod-Domar modelThe Harrod-Domar model

Economic growth depends on Economic growth depends on three factors:three factors:

A.A. the saving rate the saving rate

B.B. the capital/output ratio the capital/output ratio

C.C. the depreciation rate the depreciation rate

Economic growth depends on Economic growth depends on three factors:three factors:

A.A. the saving rate the saving rate

B.B. the capital/output ratio the capital/output ratio

C.C. the depreciation rate the depreciation rate

So, it is essentially all here, from Adam So, it is essentially all here, from Adam Smith onwards, in a single, simple Smith onwards, in a single, simple equation: Growth depends on saving equation: Growth depends on saving and efficiency, including depreciationand efficiency, including depreciation

So, it is essentially all here, from Adam So, it is essentially all here, from Adam Smith onwards, in a single, simple Smith onwards, in a single, simple equation: Growth depends on saving equation: Growth depends on saving and efficiency, including depreciationand efficiency, including depreciation

The Harrod-Domar modelThe Harrod-Domar model

Shortcomings:Shortcomings:Neither theory nor empirical evidence Neither theory nor empirical evidence

seemed to provide much support for the seemed to provide much support for the capital/output ratio as an capital/output ratio as an exogenous exogenous behavioural parameterbehavioural parameter in the model in the model

a more elaborate formulation of the link a more elaborate formulation of the link between capital and output was called forbetween capital and output was called for

The model did not leave much room for the The model did not leave much room for the other crucial factor of production, other crucial factor of production, labourlabour

population or labour-force growth is absent population or labour-force growth is absent from the formula, which explains output from the formula, which explains output growth solely by growth solely by savingsaving and and efficiencyefficiency

Shortcomings:Shortcomings:Neither theory nor empirical evidence Neither theory nor empirical evidence

seemed to provide much support for the seemed to provide much support for the capital/output ratio as an capital/output ratio as an exogenous exogenous behavioural parameterbehavioural parameter in the model in the model

a more elaborate formulation of the link a more elaborate formulation of the link between capital and output was called forbetween capital and output was called for

The model did not leave much room for the The model did not leave much room for the other crucial factor of production, other crucial factor of production, labourlabour

population or labour-force growth is absent population or labour-force growth is absent from the formula, which explains output from the formula, which explains output growth solely by growth solely by savingsaving and and efficiencyefficiency

Proved fatal Proved fatal to the Harrod-to the Harrod-Domar Domar model, as model, as Solow was to Solow was to show in 1956, show in 1956, or so it or so it seemedseemed

The second The second revolution: revolution: The The neoclassical modelneoclassical model

Even so, saving and efficiency play an important role for growth over long periods, that is, the medium term

Economic growth was considered immune to economic policy, good or bad

According to Solow, saving behaviour was no longer relevant for long-run growth, nor was efficiency in a broad sense, except insofar as it mattered for technology

Since population growth is basically a demographic phenomenon and, hence, exogenous from an economic point of view, it must follow that economic growth is also

exogenous

The second revolution:The second revolution:The neoclassical modelThe neoclassical model

… but also with a constant rate of growth of output per capita, a constant rate of interest, and a constant distribution of national income between labour and capital, all of which seemed to apply to the real world

Once attained, the long-run equilibrium is consistent with not only a constant capital/output ratio

… is better viewed as an endogenous variable, which moves over time and ultimately reaches long-run equilibrium

Solow showed how the capital/output ratio, rather than being exogenously fixed as in the Harrod-Domar

model,

The second The second revolution:revolution:The neoclassical modelThe neoclassical model

Growth is exogenous because its two main Growth is exogenous because its two main determinants, determinants, population growthpopulation growth and and technological progresstechnological progress, are exogenous, are exogenous

He treated the capital/output ratio as an endogenous variable that adjusts over time to the exogenously given growth rate of output

Solow reversed the roles of the rate of growth and the capital/output ratio

… possible to view growth as an endogenous variable: growth adjusts to the exogenously given capital/output ratio

The capital/output ratio is exogenous

The third revolution:The third revolution:Endogenous growthEndogenous growth

The neoclassical growth model seemed unable to answer The neoclassical growth model seemed unable to answer some burning questions about economic growthsome burning questions about economic growth

Is Is technological changetechnological change exogenous from an economic exogenous from an economic point of view?point of view?

Do economists really have nothing to say about economic Do economists really have nothing to say about economic growth in the long run?growth in the long run?

If output per capita grows at a rate that depends If output per capita grows at a rate that depends solely on - in fact, is equal to - the rate of solely on - in fact, is equal to - the rate of technological progresstechnological progress, then why is it that the , then why is it that the growth growth performance of different countriesperformance of different countries differs so radically differs so radically over long periods?over long periods?

What does the neoclassical model tell us about What does the neoclassical model tell us about relative relative growth performancegrowth performance anyway? anyway?

The neoclassical growth model seemed unable to answer The neoclassical growth model seemed unable to answer some burning questions about economic growthsome burning questions about economic growth

Is Is technological changetechnological change exogenous from an economic exogenous from an economic point of view?point of view?

Do economists really have nothing to say about economic Do economists really have nothing to say about economic growth in the long run?growth in the long run?

If output per capita grows at a rate that depends If output per capita grows at a rate that depends solely on - in fact, is equal to - the rate of solely on - in fact, is equal to - the rate of technological progresstechnological progress, then why is it that the , then why is it that the growth growth performance of different countriesperformance of different countries differs so radically differs so radically over long periods?over long periods?

What does the neoclassical model tell us about What does the neoclassical model tell us about relative relative growth performancegrowth performance anyway? anyway?


Do poor countries grow more Do poor countries grow more rapidly than rich countries?rapidly than rich countries?

What is the empirical What is the empirical evidence?evidence?

Do poor countries grow more Do poor countries grow more rapidly than rich countries?rapidly than rich countries?

What is the empirical What is the empirical evidence?evidence?

Called for new Called for new thinking about thinking about economic growtheconomic growth

Called for new Called for new thinking about thinking about economic growtheconomic growth


Key idea Key idea

TechnologyTechnology is probably not exogenousis probably not exogenous

More probablyMore probably

Technology depends on Technology depends on economic factorseconomic factors: the : the amount of capital available to workers - the amount of capital available to workers - the capital/labour ratiocapital/labour ratio

Key idea Key idea

TechnologyTechnology is probably not exogenousis probably not exogenous

More probablyMore probably

Technology depends on Technology depends on economic factorseconomic factors: the : the amount of capital available to workers - the amount of capital available to workers - the capital/labour ratiocapital/labour ratio

The capital/output ratio turns The capital/output ratio turns out to be a constant after allout to be a constant after all


Economic growth free to respond to Economic growth free to respond to changes in changes in saving saving and and efficiencyefficiency, and , and depreciationdepreciation, even in the long run, even in the long run

The Harrod-Domar model has thus been The Harrod-Domar model has thus been restoredrestored

Endogenous technology makes economic Endogenous technology makes economic growth also growth also endogenousendogenous

Economic growth free to respond to Economic growth free to respond to changes in changes in saving saving and and efficiencyefficiency, and , and depreciationdepreciation, even in the long run, even in the long run

The Harrod-Domar model has thus been The Harrod-Domar model has thus been restoredrestored

Endogenous technology makes economic Endogenous technology makes economic growth also growth also endogenousendogenous

Throws all windows wide Throws all windows wide openopenThrows all windows wide Throws all windows wide openopen

The third revolution:Endogenous growth and development

The effort to economize

Accumulation of knowledge

Accumulation of capital

Economic growth responds to economic policy

Economic growth obeys the same laws as economic development

Arthur Lewis

The third revolution:The third revolution:Endogenous growth - SummaryEndogenous growth - Summary

Growth theory and the origins of economics

Classical economists: viewed Classical economists: viewed economic growth as economic growth as endogenousendogenous

The classical view was neatly summarized in a simple equation by Harrod and DomarSolow: economic growth depends on technology, and is exogenous in the long runEconomic theorists went back to their drawing boards, and re-endogenized growth

Questions for reviewQuestions for review

1.1. Suppose foreign trade stimulates economic Suppose foreign trade stimulates economic growth as argued by Adam Smith, other things growth as argued by Adam Smith, other things being equal. Does it follow that large countries being equal. Does it follow that large countries with limited trade with the rest of the world with limited trade with the rest of the world should be expected to grow less rapidly than should be expected to grow less rapidly than small countries with extensive foreign trade?small countries with extensive foreign trade?

Why not?Why not?

2.2. ‘A high saving rate ensures rapid economic ‘A high saving rate ensures rapid economic growth.’ Is this statement true or false? Discuss.growth.’ Is this statement true or false? Discuss.

1.1. Suppose foreign trade stimulates economic Suppose foreign trade stimulates economic growth as argued by Adam Smith, other things growth as argued by Adam Smith, other things being equal. Does it follow that large countries being equal. Does it follow that large countries with limited trade with the rest of the world with limited trade with the rest of the world should be expected to grow less rapidly than should be expected to grow less rapidly than small countries with extensive foreign trade?small countries with extensive foreign trade?

Why not?Why not?

2.2. ‘A high saving rate ensures rapid economic ‘A high saving rate ensures rapid economic growth.’ Is this statement true or false? Discuss.growth.’ Is this statement true or false? Discuss.

Questions for reviewQuestions for review

3.3. Explain how more and better education affects Explain how more and better education affects (a) the level of per capita GNP in the long run (a) the level of per capita GNP in the long run and (b) its long-run rate of growth according toand (b) its long-run rate of growth according to

I. the Harrod-Domar model;I. the Harrod-Domar model;

II. the Solow model;II. the Solow model;

III. the endogenous-growth model.III. the endogenous-growth model.

4.4. Why does increased depreciation of capital Why does increased depreciation of capital reduce economic growth, other things being reduce economic growth, other things being equal? Does it matter whether the depreciation equal? Does it matter whether the depreciation is physical or economic? - i.e. whether it results is physical or economic? - i.e. whether it results from physical wear and tear or from low-quality from physical wear and tear or from low-quality investment decisions in the past.investment decisions in the past.

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