Technological Progress and Growth
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Transcript of Technological Progress and Growth
Chapter 12: Technological Progress and Growth Slide #1Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Technological Progress and the Production FunctionTechnological Progress and the Production Function
),( ANKFY AN = Effective Labor. Assuming:
•Constant returns to scale•Given state of technology•2Y = F(2K,2AN)
•xY = F(xK,xAN)•Y/AN = f(K/AN)
Chapter 12: Technological Progress and Growth Slide #2Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Technological Progress and the Production FunctionTechnological Progress and the Production Function
f(K/AN)
Ou
tpu
t p
er
eff
ec
tiv
e w
ork
er,
Y/A
N
Capital per effective worker, K/AN
Chapter 12: Technological Progress and Growth Slide #3Blanchard: Macroeconomics
Investment sf(K/AN)
Technological Progress and GrowthTechnological Progress and Growth
Investment, Capital, & Output per Effective WorkerInvestment, Capital, & Output per Effective Worker
Production f(K/AN)
Ou
tpu
t p
er e
ffec
tive
wo
rker
, Y
/AN
Capital per effective worker, K/AN
Chapter 12: Technological Progress and Growth Slide #4Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Determining the needed to maintain a givenDetermining the needed to maintain a given
AN
I
AN
K
Assume:
Then:
•A population growth rate/yr (gN)
•N grows at same rate as gN
•Rate of technological progress gA
Growth rate of effective labor (AN) = gA + gN
If: gA = 2% & gN = 1%, then AN growth = 3%
Chapter 12: Technological Progress and Growth Slide #5Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Determining the needed to maintain a givenDetermining the needed to maintain a given
AN
I
AN
K
The level of investment needed to maintain :AN
K
KKgg NA ofondepreciati)(
KggK NA )( Or:
Therefore: K is needed to keep K constant
Chapter 12: Technological Progress and Growth Slide #6Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Determining the needed to maintain a givenDetermining the needed to maintain a given
AN
I
AN
K
For Example:
And: (gA + gN)K is needed to ensure K increases at the same rate as AN
Required Investment to maintain K/AN = (d + gA + gN)K
If: , then investment = 10% of K to maintain K%10
Chapter 12: Technological Progress and Growth Slide #7Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Determining the needed to maintain a givenDetermining the needed to maintain a given
AN
I
AN
K
Amount of Investment Needed/Effective Worker to
maintain a constant AN
K
AN
Kgg NA )(
Chapter 12: Technological Progress and Growth Slide #8Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Dynamics of Capital & OutputDynamics of Capital & Output
Investment sf(K/AN)
Production f(K/AN)
Required investment ( + gA + gN)K/ANδ
Ou
tpu
t p
er
eff
ec
tiv
e w
ork
er,
Y/A
N
Capital per effective worker, K/AN
A
B
(K/AN)o
C
D Observe (K/AN)0:AC > AD
(K/AN)*
AN
Y *
Chapter 12: Technological Progress and Growth Slide #9Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Dynamics of Capital & OutputDynamics of Capital & Output
Observations about the Steady State:Observations about the Steady State:
•Growth rate of Y = growth rate of AN
•AN growth rate = (gA + gN)
•Y growth rate = (gA + gN) independent of s
•K growth rate = (gA + gN)
•Y/N growth rate = gA
Chapter 12: Technological Progress and Growth Slide #10Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Dynamics of Capital & OutputDynamics of Capital & Output
The Characteristics of Balanced GrowthThe Characteristics of Balanced Growth
Growth: rate of
1.2.3.4.5.6.7.
Capital per effective worker 0Output per effective worker 0Capital per worker gA
Output per worker gA
Labor gN
Capital gA+gN
Output gA+gN
Chapter 12: Technological Progress and Growth Slide #11Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The Effects of the Savings RateThe Effects of the Savings Rate
f(K/AN)
Ou
tpu
t p
er
eff
ec
tiv
e w
ork
er,
Y/A
N
Capital per effective worker, K/AN
A
(K/AN)0
AN
Y
0
( + gA + gN)K/ANδ
s0f(K/AN)
Savings = s0
Steady-state = &
AN
Y
0
AN
Y
0
s1f(K/AN)
(K/AN)1
B
Savings increase to s1
S1f(K/AN)
Steady-state = &
AN
Y
1
AN
Y
1
AN
Y
1
Chapter 12: Technological Progress and Growth Slide #12Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The Effects of an Increase in the Savings RateThe Effects of an Increase in the Savings Rate
Ou
tpu
t, Y
(lo
g s
ca
le)
Time
t
Associated with s0
Associated with s1 > s0
B
slope (gA + gN)
B
A
A
Ca
pit
al,
K (
log
sc
ale
)
Time
t
Associated with s0
Associated with s1 > s0
B
slope (gN + gA)
B
A
A
Chapter 12: Technological Progress and Growth Slide #13Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The Facts of Growth RevisitedThe Facts of Growth Revisited
A ReviewA Review
Observations on growth in developed countries
since 1950:
•Sustained growth 1950-mid 1970s
•Slowdown in growth since the mid 1970s
•Convergence: countries that were furtherbehind have been growing faster
Chapter 12: Technological Progress and Growth Slide #14Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The Facts of Growth RevisitedThe Facts of Growth Revisited
Understanding These TrendsUnderstanding These Trends
Determinants of Fast Growth:•Higher rate of technological progress (gA)•Higher level of capital/effective worker (K/AN)
Capital Accumulation vs. Technological Progress
Chapter 12: Technological Progress and Growth Slide #15Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Capital Accumulation vs. Technological ProgressCapital Accumulation vs. Technological Progress
Average is a simple average of the growth rates in each column. Germany refers to West Germany only.
Growth of Output per Capita Rate of Technological Progress
1950-73 1973-87 Change 1950-73 1973-87 Change(1) (2) (3) (4) (5) (6)
France 4.0 1.8 -2.2 4.9 2.3 -2.6
Germany 4.9 2.1 -2.8 5.6 1.9 -3.7
Japan 8.0 3.1 -4.9 6.4 1.7 -4.7
United Kingdom 2.5 1.8 -0.7 2.3 1.7 -0.6
United States 2.2 1.6 -0.6 2.6 0.6 -2.0
Average 4.3 2.1 -2.2 4.4 1.6 -2.8
Chapter 12: Technological Progress and Growth Slide #16Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The FindingsThe Findings
•1950-1973 high growth of output per capita dueto technological progress
•Since 1973 slowdown in growth of output per capita due to a decrease in the rate of technological progress
•Convergence is the result of technologicalprogress
Capital Accumulation vs. Technological ProgressCapital Accumulation vs. Technological Progress
Chapter 12: Technological Progress and Growth Slide #17Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Measurement ErrorMeasurement Error
•Measuring productivity
•Quality changes and inflation
Why has technological progress slowed since themid 1970s?Why has technological progress slowed since themid 1970s?
What do you think…Has the measurement error increased?
What do you think…Has the measurement error increased?
Chapter 12: Technological Progress and Growth Slide #18Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
The Rise of the Service SectorThe Rise of the Service Sector
•Limited technological progress in the service sector
Why has technological progress slowed since themid 1970s?Why has technological progress slowed since themid 1970s?
The EvidenceThe Evidence
Chapter 12: Technological Progress and Growth Slide #19Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Why has technological progress slowed since themid 1970s?Why has technological progress slowed since themid 1970s?
Decreased R&D Spending: The Evidence
1963 1975 1989
France 1.6 1.8 2.3
Germany 1.4 2.2 2.9
Japan 1.5 2.0 3.0
United Kingdom 2.3 2.0 2.3
United States 2.7 2.3 2.8
Source: Kumiharu Shigehara, “Causes of Declining Growth in Industrialized Countries.”
Spending on R&D as a Percentage of GDP
Chapter 12: Technological Progress and Growth Slide #20Blanchard: Macroeconomics
Technological Progress and GrowthTechnological Progress and Growth
Why has technological progress slowed since themid 1970s?Why has technological progress slowed since themid 1970s?
The Findings:The Findings:
The proximate reason for the decline in the rate oftechnological progress is a decline in fertility ofR&D
What do you think…
Why has the fertility of R&D declined?
What do you think…
Why has the fertility of R&D declined?