Lecture 8 - Economic growth – II. After studying this lecture you will be able to understand: Key results from Solow model with tech progress, ways to increase the saving rate, productivity slowdown & “new economy”, empirical studies, endogenous growth theory. | Lecture 8 Economic Growth – II Instructor: Prof. Abbas Lecture Contents Technological progress in the Solow model Policies to promote growth Growth empirics: Confronting the theory with facts 1 Introduction In the Solow model, the production technology is held constant income per capita is constant in the steady state. Neither point is true in the real world: 1929-2001: . real GDP per person grew by a factor of , or per year. examples of technological progress abound 2 Examples of technological progress 1970: 50,000 computers in the world 2000: 51% of . households have 1 or more computers The real price of computer power has fallen an average of 30% per year over the past three decades. The average car built in 1996 contained more computer processing power than the first lunar landing craft in 1969. Modems are 22 times faster today than two decades ago. Since 1980, semiconductor usage per unit of GDP has increased by a factor of 3500. 1981: 213 computers . | Lecture 8 Economic Growth – II Instructor: Prof. Abbas Lecture Contents Technological progress in the Solow model Policies to promote growth Growth empirics: Confronting the theory with facts 1 Introduction In the Solow model, the production technology is held constant income per capita is constant in the steady state. Neither point is true in the real world: 1929-2001: . real GDP per person grew by a factor of , or per year. examples of technological progress abound 2 Examples of technological progress 1970: 50,000 computers in the world 2000: 51% of . households have 1 or more computers The real price of computer power has fallen an average of 30% per year over the past three decades. The average car built in 1996 contained more computer processing power than the first lunar landing craft in 1969. Modems are 22 times faster today than two decades ago. Since 1980, semiconductor usage per unit of GDP has increased by a factor of 3500. 1981: 213 computers connected to the Internet 2000: 60 million computers connected to the Internet 3 Students are certainly aware that rapid technological progress has occurred. Yet, it’s fun to show these figures, to take stock of some specific kinds of technological progress. Those of your students that connect to the internet over a modem probably gripe about sluggish downloads; ask them to imagine what it must have been like using the modems of the early 1980s. Sources: The Economist, various issues The Elusive Quest for Growth, by William Easterly The 2001 Statistical Abstract of the United States at Tech. progress in the Solow model A new variable: E = labor efficiency Assume: Technological progress is labor-augmenting: it increases labor efficiency at the exogenous rate g: 4 Tech. progress in the Solow model We now write the production function as: where L E = the number of effective workers. Hence, increases in labor efficiency have the .
