1 Lecture 3 Don DeVoretz Modern Theories: Neo-Colonial, Neo-Classical and Endogenous

2 Neo-Colonial Dependence:1970’s Center-Periphery is key concept –Center is developed and Periphery is LDC Power Elites in Center –Multi-nationals, aid agencies, IMF, World Bank Reward Power Elites in Periphery –landlords, military, public officials

3 Neo-Classical:1980’s: Underdevelopment self-induced Too much state intervention Wrong set of prices Conclusion: Need free markets –Give correct price signals –reduce corruption, inefficiency –examples NICS

4 Neo-Classical Model Nr Yp ESavings Y/L = K/L Yp rate N”r High Medium f

5 Neo-Classical Working Growth determined by –N=Cb-Cd or population growth –r= k/l or capital labour ration of efficiency –S=savings rate= f(Y/L) Conclusions –Level of Y/L result of n and savings rate –Y/L inverse(direct) on (n) and (s) –E (F) high (low) level equilibrium

6 Endogenous Growth Theory: 1990’s Once you start to grow you continue –increasing returns to scale –first to the post wins First in international trade get all rents Gains from trade translate into further gains –Complementary investments key to growth education, infrastructure, and R and D –Conclusion: No convergence

7 End of Show