1. ECO 102 Development Economics
Aisha Khan
Summer 2009
Section G & I
Lecture Ten

2. Contemporary Models of Development
Chapter Five

3. The New Growth Theory: Endogenous Growth
Traditional growth theories (chapter 4)
Don’t explore long term growth
Motivation
Solow residual
Increases in GDP that arise not due to changes in capital of labor
Exogenous and independent process of technological progress
Persistent GNP growth is determined by the production process not external forces

4. The Romer Model
Technological spillovers in the process of industrialization
Assumes
Growth processes derive from the firm or industry level
CRS
Capital stock includes knowledge  public good  spill over

5. Romer model g-n = β/[1-α+β] g= output growth rate
n= population growth rate

6. Criticism Assumes single sector production
Doesn’t incorporate the transformation of labor and capital in the production process
Allocational inefficiencies

7. Underdevelopment as a coordination failure
A state of affairs in which agents inability to coordinate their behavior leads to an outcome where all agents are worse off than in the alternative situation
Illustrated by the “where-to-meet” problem
Lack of coordination can make a country be trapped in underdevelopment.
government deep intervention can help solve at times

9. Reminder
Assignments on Kenya due today

10. Case-Study: Economist Article