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1 Historic Growth and Contemporary Development Lessons and Controversies.

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Presentation on theme: "1 Historic Growth and Contemporary Development Lessons and Controversies."— Presentation transcript:

1 1 Historic Growth and Contemporary Development Lessons and Controversies

2 2 Outline: n Economics of Growth n Kuznet’s six characteristics of economic growth n Conclusions on interdependence of growth n Appropriate technology and employment generation (pp ) n Chenery’s Patterns of development n Case study: East Asian miracle/crisis

3 3 The Growth Game n Growth rates of national income are followed closely by policy-makers n In order to better understand contemporary growth prospects, it is useful to examine historical growth patterns

4 4 The Economics of Growth: Capital, Labor, and Technology n Three factors/ components of economic growth –Capital accumulation results from an increase in capital stock and improved human resources –Population and eventually labor force growth- shifts in PPF –Technological progress - L/K augmenting

5 5 The Economics of Growth: Capital, Labor, and Technology n Capital accumulation –Physical capital stock –Infrastructure –Human capital n Population and labor force growth –Effect of increases in physical and human resources on PPF –Resource growth is not a necessary condition for SR growth

6 6 The Economics of Growth: Capital, Labor, and Technology n Technological progress –Neutral –Saving Labor saving Capital saving –Augmenting Labor- augmenting Capital- augmenting

7 7 The Historical Record: Kuznet’s Six Characteristics of Modern Economic Growth n Based on the analysis of historical growth of national incomes in developed countries, Prof. Simon Kuznets has identified three principal components for a country’s economic growth: –Sustained rise in national output –Technological advancement is a necessary but not sufficient condition for continuous economic growth –Technological innovation and social innovation are concomitant

8 8 The Historical Record: Kuznet’s Six Characteristics of Modern Economic Growth n Six features present in the growth process of every developed nation are: 1.High rates of per capita output and population growth 2.High rates of total factor productivity increase 3.High rates of economic structural transformation 4.High rates of social, political, and ideological transformation 5.International economic outreach for markets and raw materials 6.Limited international spread of this economic growth to 1/3 of the world’s population

9 9 High rates of per capita output and TFP On average, between 1770 and 2000, countries that are now industrialized had –real GNP growth 3% per year –population growth 1% per year –per capita output 2% per year TFP: –It is the output per unit of all inputs and measures the efficiency with which all inputs are used –It represents technology and accounts for about 50 t0 75% of historical growth per capita in industrialized economies

10 10 Factor Accumulation Accounts for Only a Fraction of Growth

11 11 Social and ideological transformation “Modernization Ideals” include –Rationality –Economic planning –Social and economic equalization –Improved institutions and attitudes

12 12 Interdependence of growth characteristics Rising TFPHigh per capita output High per capita income & consumption Structural changes in production and labor Economic growth + technological changes International outreach Self-generating economic growth

13 13 Chenery’s Patterns of Development n Chenery and colleagues examined patterns of development for developing countries at different percapita income levels during the post-war period. n Major hypothesis is that development is an identifiable process of growth and change whose main features are similar in all countries. n The empirical studies identified several characteristic features of economic development: –Shift from agriculture to industrial production –Steady accumulation of physical and human capital –Change in consumer demands –Increased urbanization –Decline in family size –Demographic transition

14 14 Chenery’s Patterns of Development n The model recognizes that differences in development occur among countries due to : –Resource endowment and size –Government policies and objectives –Availability of external capital and technology –International trade environment n A correct mix of policies based on observed patterns occurring in all countries during the development process can generate growth n Emphasis on patterns rather than theory may lead the countries to draw wrong conclusions (reverse causality??).

15 15 The Limited Value of the Historical Growth Experience: Differing Initial Conditions n Physical and human resource endowments –Developing countries have poor endowments of both –Developing countries are faced with technology and ingenuity gaps n Relative levels of per capita income and GNP –LDCs have lower living standards than historical living standards in present developed nations n Climatic differences –Tropical vs temperate n Population size, distribution, and growth n Historical role of international migration n International trade benefits n R and D capabilities n Institutional stability and flexibility

16 16 The Limited Value of the Historical Growth Experience: Differing Initial Conditions n Population size, distribution, and growth –Exceed the historical growth rates of developed countries (2% per annum) n Historical role of international migration –Illegal immigration of unskilled workers –Brain drain n International trade benefits –Deteriorating terms of trade for developing countries –Existence of barriers to trade n R and D capabilities –Economic dualism

17 17 The Limited Value of the Historical Growth Experience: Differing Initial Conditions n Institutional stability and flexibility –Recent political independence –Transitional economies

18 18

19 19 Economic convergence? n Reasons to expect convergence of incomes between developed and developing nations: –Technology transfer to developing countries –Rapid factor accumulation in developing countries –Advantages of backwardness n Incomes would tend to equalize conditional on key variables such as population growth n No evidence of unconditional convergence but there is evidence of convergence among OECD countries

20 20 Divergence in the World as a Whole

21 21 Convergence among OECD Countries

22 22 Fiscal balances and Savings

23 23 Macroeconomic Indicators

24 24 External debt

25 25 Private capital flows

26 26

27 27

28 28 Case Study: Asia’s Miracle: Readings n Taiwan - Inside the Miracle: A Development Success Story at 0,6111, ,00.html 0,6111, ,00.html n "Growth in East Asia: What We Can and What We Cannot Infer" provides a succinct overview of the debate about East Asia's rapid growth before the debt crisis of 1997at htm. The diagrams on slides #27 and 28 are sourced from this article. htm


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