Transcript Review - Stanford University

Economics 121:
The Macroeconomics of Development
Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.)
Kwoh-Ting Li Professor of Economic Development
Department of Economics
Stanford University
Stanford, CA 94305-6072, U.S.A.
Spring 2000-2001
Email: [email protected]; WebPages: http://www.stanford.edu/~ljlau
Review
Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.)
Kwoh-Ting Li Professor of Economic Development
Department of Economics
Stanford University
Stanford, CA 94305-6072, U.S.A.
Spring 2000-2001
Email: [email protected]; WebPages: http://www.stanford.edu/~ljlau
The Historical Experience of Economic
Development
 The
characteristics of economic development
 Demographic
transition
 Decline
in mortality and morbidity
 Rise in life expectancy
 Decline in the fertility and birth rates
 Sustained
growth in real output per capita
 Industrialization
 Urbanization
 Sustained rise in literacy and educational achievement
 Sustained improvements in life expectancy and other health status
indicators
 An equitable distribution of income
Lawrence J. Lau, Stanford University
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The Sources of Economic Growth

Measured Inputs
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Technical Progress
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Tangible Capital
Labor
Human Capital
R&D Capital
Intangible Capital (Human Capital, R&D Capital, Goodwill (Advertising and
Market Development), Information System, Software, etc.)
Other Omitted and Unmeasured Inputs (Land, Natural Resources, Water
Resources, Environment, etc.)
Improvements in Technical and Allocative Efficiency
The traditional growth-accounting formula
The sources of economic growth in developed and developing
countries
Lawrence J. Lau, Stanford University
4
Cross-Country Growth Regressions
 Concepts
of convergence
 Absolute
convergence of real GDP per capita
 Conditional convergence of real GDP per capita
 Convergence in technology
Lawrence J. Lau, Stanford University
5
Models of Economic Development
 Two-Gap
Models
 Savings
gap
 Foreign exchange gap
 Two-Sector
Models
 Dual Economy Models with and without Surplus Labor
 Characteristics
of the Lewis Model
 Zero
marginal productivity of labor in the agricultural sector--agricultural
output is fixed
 Constant real subsistence wage rate in agriculture--institutionally
determined
 Landlords and capitalists save; laborers consume
 Marginal productivity of labor higher in the industrial sector than in the
agricultural sector
 Migration of labor from the agricultural sector to the industrial sector raises
aggregate real output of the entire economy
Lawrence J. Lau, Stanford University
6
Savings and Capital Accumulation
 The
relationship among savings rate, capital accumulation,
and the level and rate of growth of real GDP per capita
 Determinants of savings
 Savings and investment
Lawrence J. Lau, Stanford University
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The Role of Money and Finance
 The
“Quantity Theory of Money”: MV=PT or V=PT/M
V
V
rises with technical progress in the transactions technology
as defined cannot be measured because T is not directly
observed; instead, one can define an alternative velocity variable
V*=PY/M in terms of observable variables--V*= PT/M x Y/T =
V x Y/T = V/
 The variable  =T/Y, the ratio of the total real volume of all
transactions T to Y is non-constant but changes over time
 The
volume of transactions relative to real GDP (T/Y) tends to rise in the
process of economic development
 T/Y also rises with financial deepening
 T/Y rises with rising volume of trade with the same trade surplus/deficit
 Inflation
and money supply
 The
role of financial intermediation
 Evolution of long-term
markets
Lawrence capital
J. Lau, Stanford
University
8
Stabilization in Closed and Open Economies
 Insufficient
aggregate demand
 Excess aggregate demand
 Inflation and taxation
 Current and capital account balance
 Exchange rate policy
 The causes of the East Asian currency crisis
 Lessons from the East Asian currency crisis
Lawrence J. Lau, Stanford University
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Development Policies and Strategies
 Big
Push versus Balanced Growth
 Export Promotion versus Import Substitution
 The
infant industry argument
 Central
Planning versus Market
 The role of foreign capital
Lawrence J. Lau, Stanford University
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Human Capital, Intangible Capital, and
Infrastructural Capital
 The
distinction between social and private rates of return
 Appropriability
 Network externalities
 Justification for public investments and/or subsidies
Lawrence J. Lau, Stanford University
11
Endogenous Economic Growth
 Technical
progress as the outcome of purposive activity
 Motivation is the possibility of monopoly profit
 Technological increasing returns to scale and market
increasing returns to scale
 Increasing or constant returns to knowledge capital at the
microeconomic level is neither necessary nor sufficient for
increasing returns to scale at the macroeconomic level in
knowledge capital, tangible capital and labor
Lawrence J. Lau, Stanford University
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