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Lecture 51 Macroeconomic Analysis 2003 Complementarity Between Human and Physical Capital and Economic Growth.

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Presentation on theme: "Lecture 51 Macroeconomic Analysis 2003 Complementarity Between Human and Physical Capital and Economic Growth."— Presentation transcript:

1 Lecture 51 Macroeconomic Analysis 2003 Complementarity Between Human and Physical Capital and Economic Growth

2 Lecture 52 Importance of Human Capital in Different Parts of the Economy

3 Lecture 53 Capital Stock, Labour, GDP and Work Hours in UK in 2000

4 Lecture 54 Average annual % real changes, unless otherwise stated Decades 1 Gomvernments Economic cycles 2 1970s1980s1990s 1979- 19 97 1992- 19 97 1997- 20 01 1975- 19 81 1981- 19 92 OUTPUT GDP2.4% 2.0%2.2%2.9%2.7%1.3%2.4% Industrial production1.8%1.4%0.9%1.4%2.3%0.6%0.7%1.9% Manufacturing output0.6%1.0%0.4%0.9%1.9%0.6%-2.0%1.9% Services output2.5%2.6%2.7%2.6%3.5%3.6%1.6%2.5% Household consumption2.6%3.3%2.2%2.6%2.8%4.0%1.6%2.9% Growth Experience is Outcome of Interaction between Human and Physical Capital Accumulation (www.HM-Treasury.co.uk)

5 Lecture 55 General Indicators of human capital Education:literacy, numeracy and problem solving ability Sound health and long life expectancy Productive skills Proportion of Independent Thinkers in the population Opportunities for on the job training

6 Lecture 56 Specific Elements of Human Capital

7 Lecture 57 INVESTMENT 1970 s 1980 s 1990 s 1979- 9 7 1992- 9 7 1997- 2 1 1975- 8 1 1981- 9 2 Whole economy1.3%4.0%2.2%2.5%2.8%5.9%-2.0%3.9% Business2.7%4.8%3.5%3.1%3.7%7.2%-0.1%4.3% Manufacturing1.5%0.5%-0.3%0.5%5.4%-1.1%-0.9%1.1% General govt.---1.4%--5.3%4.3%-- Whole economy (% GDP) 16.9 % 16.1 % 17.2 % 16.3 % 16.6 % 17.7 % 16.5 % 16.3 % Business (% GDP)9.7% 10.2 % 11.9 % 10.3 % 10.7 % 12.7 % 9.8% 10.2 % Manufacturing (% GDP)3.0%2.5%2.4%2.5%2.3%2.4%2.9%2.5% General govt. (% GDP)--1.8%-2.0%1.3%-- PRODUCTIVITY Whole economy2.0%1.8%2.0% 2.6%1.6%1.4%2.1% Manufacturing-4.0%2.5%3.5%2.2%3.1%-5.0% Investment and Productivity in UK (www.HM-Treasury.co.uk) Average annual % real changes, unless otherwise stated

8 Lecture 58 Human Capital and Types of Technical Advancement Y K L Base0 20 10 10 Lab Ag. 20 10 5 Cap Ag. 20 5 10 Neutral 20 5 5

9 Lecture 59 Labour Augmenting Technology and Growth:A Simple Model

10 Lecture 510 How does the labour augmenting technological advancement affect the per capita capital and per capita output in the steady state? Primitive Technology Advanced Technology

11 Lecture 511 MPKh1 MPKh2 w1 w2 Increase in Real Wage Rate with Human Capital Technological advancement raises wage rate but reduces Work hours.

12 Lecture 512 Complimentarily of Human and Physical Capital and Output

13 Lecture 513 Human Capital Augmented Solow Growth Model

14 Lecture 514 Exogenous Technology in the Solow Model

15 Lecture 515 Why a Higher Saving Rate Does not Lead to a Higher Growth Rate in the Solow Model? Low saving country High saving country Because of diminishing returns to capital

16 Lecture 516 time y Economy grows only at the rate of technology and the Saving Rate does not affect the steady State growth rate in the Solow Model g y = g A This is due to the diminishing marginal Product of capital

17 Lecture 517 Human Capital, Savings and Economic Growth

18 Lecture 518 r MPK h1 MPK h2 MPK h3 k3k2k1 Constant Marginal Product of Capital with Human Capital

19 Lecture 519 Saving, Capital Accumulation and Output with Human Capital k y

20 Lecture 520 Complimentarily Between Physical and Human Capital

21 Lecture 521 What Can Policy Do to Improve the Human Capital and Technology?

22 Lecture 522

23 Lecture 523 Human Capital Formation: Students and Teachers in Higher Education in the UK www.dfes.gov.uk, www.hesa.co.uk www.dfes.gov.uk

24 Lecture 524 Students in Higher Education in the UK by Subject Categories

25 Lecture 525 Simple version of the Lucas Model with Human Capital

26 Lecture 526 Production Function with Study Time and Capital

27 Lecture 527 Study Time and Growth of Human Capital

28 Lecture 528 phiThetaalphasdeltan 1.30.20.30.170.030.005 k-per caph y-per cap Savin g Depreciati on Net Inv C per cap Timek1ysDIC 11.0001.0400.3240.0550.030-0.0050.269 20.9951.0820.3330.0570.030-0.0030.276 30.9921.1250.3420.0580.030-0.0010.284 40.9911.1700.3510.0600.0300.0000.291 27318336446791078618345507338952 27419070464661121719075727639311 27519833483251166619835957939683 276206265025812133206361982510070 Unbounded Growth Prospect with More Study and Growth of Human Capital (UK Example)

29 Lecture 529 Does an Advancement in the Technology Increase the Real Wage Rate of Every one Equally? With mobility of labour across regions and sectors introduction of new technology should increase wages of all types of workers –But Wage rates in the high tech and manufacturing sectors have grown at higher rate than in the service sectors New technology replaces old technology and people with obsolete technology may become redundant and may spend a long time before finding a new job.

30 Lecture 530 AD0 AD1 AS0 AS1 e0 y0 y1 Pessimistic view Ad0 AD1 AS0 AS1 Optimistic view Pessimistic and Optimistic View of Impact of Technology on Output and Employment Price p1 p0 y0 y1 p0 p1 Reason for Trade Disputes Reasons for Technology Adoption

31 Lecture 531

32 Lecture 532 Growth Rate of Per Capita Income and Human Development Index Among the slowest and Fastest Growers Growth DisastersGrowth Miracles Slow Growing Country Average growthHDI Fast Growing Country Average GrowthHDI CAFR-1.22 0.375 China8.15 0.726 Chad0.92 0.365 Hong Kong, China4.22 0.888 Ghana0.21 0.548 Ireland4.71 0.925 Haiti-2.01 0.471 Korea, Rep.5.81 0.882 Madagascar-1.61 0.469 Japan2.33 0.933 Nicaragua-1.58 0.635 Malta4.11 0.875 Niger-2.34 0.277 Portugal2.85 0.88 Senegal0.25 0.431 Singapore5.02 0.88 Sierra Leone-2.85 0.275 Thailand4.74 0.75 Venezuela, RB-1.15 0.77 Zambia-1.82 0.433

33 Lecture 533 Average Growth rate HDI Average Growth rate HDI 80-2000 95-2000 Austria1.952.16 0.926 Lithuania-0.833.52 0.808 Belgium2.002.50 0.939 Luxembourg4.044.40 0.925 Bulgaria0.770.10 0.779 Malta4.113.80 0.875 Cyprus4.163.41 0.883 Netherlands1.832.71 0.935 Czech Republic0.181.91 0.849 Norway2.522.60 0.942 Denmark1.632.25 0.926 Poland3.595.40 0.833 Estonia0.736.41 0.826 Portugal2.853.29 0.880 Finland2.404.59 0.930 Romania-0.710.14 0.775 France1.651.99 0.928 Slovak Republic0.834.38 0.835 Germany1.651.61 0.925 Slovenia2.014.31 0.879 Greece0.982.90 0.885 Spain2.423.44 0.913 Hungary1.284.01 0.835 Sweden1.632.85 0.941 Ireland4.718.57 0.925 Turkey2.202.91 0.742 Italy1.881.90 0.913 United Kingdom1.952.42 0.928 Latvia0.335.02 0.800 European Countries Have Better Human Capital to Grow

34 Lecture 534 Economically Important Innovations: Product of Genius, Active and Risk-loving People (Forbes Dec 2002)

35 Lecture 535 Human Capital in a Production Firm CEO BoardProductionSalesResearchPersonnelFinance CEO Director 1Director 2 Deputy 1Deputy 2 Assistant 2 Assistant 3 Assistant 1 Deputy 3Deputy 4 Director 3 Decentralised System Centralised System

36 Lecture 536 Demand for Schools Depends on Population Growth Rate

37 Lecture 537 Exercises Prove why saving rate does not affect the growth rate of output in the Solow model. Analyse complementarity between human and physical capital with human capital augmented Solow model. Find the steady state per capita output and capital stock with labour augmenting technological change. A few economically important innovations Real wage effect of the technology:two speed economy?


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