Transcript Unified growth theory

Unified growth theory
From stagnation to growth
• Sustained economic growth is a recent
phenomenon, most of it having occured in
the past 200 years
• World GDP:
– From year 1 to 1000, no growth
– From year 1000 to 1820, 50% growth
– From year 1820 to 2000, 850% growth
Unified growth theory, Galor (2005)
• UGT tries to explain not only the modern rates of growth,
but also the period of stagnation before the industrial
revolution
• This period of stagnation is sometimes referred to as
Malthusian stagnation
– Malthus (1798): Long-run growth in living standards is
impossible
– Why? Higher living standards -> Higher population growth (from
higher life expectancy and larger families) -> living standards fall
because of fixed land supply
• However, an economy can escape from Malthusian
stagnation if it does not rely on agriculture anymore: e.g.,
industrialization
• Model solved in class
More on unified growth theory
• One missing part so far is the demographic
transition
– When production took off, population growth declined
• Why? Because of the greater importance of
human capital in the production process
– More advanced technologies require more human
capital
– People started to make fewer children, so that each
child ends up with more human capital
(quality/quantity tradeoff)
– This also increased production per capita by
eliminating the negative effect of population growth