Download Economic Growth and Development

Economic Growth and
Development
Peter Boettke
Econ 881/Spring 2005
11 April
A Tell All Tale

Sen and the differences in development
economics in 1964 and 2004

1964 – exploitation theme


Western Wealth is a consequence of exploitation of the
Third World
2004 -- gains from trade theme

Wealth is a consequence realizing mutually beneficial
exchange
A Short History of Modern Development
Economics

19th Century Development Theory

Theory

Why No Capitalism in China?


Policy

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20th

Trade and/or Colonialism
Century Development Theory
Theory
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Socialist Industrial Planning

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Economics of Backwardness
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21st
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Keynesianism
Century Development
Theory

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First, Second, Third World
Policy
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Underdeveloped World and the Developed World
New Growth Theory and Institutionalism
Policy
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Washington Consensus
Shock Therapy versus Gradualism
Growth Theory

Birth of the Solow model
 Soviet debate on Industrialization

Harrod, Domar, and Solow

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Solow conclusion
 Bohm-Bawerkian presumption

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Y = f(K + L) + e
Capital intensity doesn’t explain different performance of economies
Explanation is to be found in the error term
Solow problem
 Leaving unexplained what must be explained
 Lack of convergence
Lucas revolution
 The reason why Capital Doesn’t Go from Rich to Poor Countries
is because of human capital differences
Lucas, Lectures on Economic Growth, p. 95.
The main engine of growth is the accumulation of human capital – of
knowledge – and the main source of differences in living standards among
nations is differences in human capital. Physical capital accumulation plays
an essential but decidedly subsidiary role. Human capital accumulation takes
place in schools, in research organizations, and in the course of producing
goods and engaging in trade. Little is known about the relative importance of
these different models of accumulation, but for understanding periods of very
rapid growth in a single economy, learning on the job seems to be by far the
most central. For such learning to occur on a sustained basis, it is necessary
that workers that workers and managers continue to take on tasks that are
new to them, that they continue to move up … the quality ladder. For this to
be done on a large scale, the economy must be a large-scale exporter.
But is this confusing cause and
consequence?

Human Capital

Why is it attractive to invest in your human
capital?
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Quality Ladder

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Mobility
Rate of return (schooling and growth)
Organization and opportunity
Exporter

Trading opportunities
Basic Economic Reasoning of
Development

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Increases in Real Income Can Only Come
From Increases in Real Productivity
Real Productivity results from:

Improvements in labor skill


Increases in capital


Human capital
Technological improvements
Refinements in managerial and organizational
form

New techniques of organizing and motivating teams
“Tell me as if I was in kindergarten.”

People

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Resources

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Treat as given
Treat as given
Rules

How people interact with each other, and how
they utilize resources

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Policy framework
Policy within the framework
What Role for Entrepreneurship in
Economic Development?

Productive
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Arbitrage

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Innovation

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Closing price gaps
New products and/or new methods of production
Unproductive

Wealth transfers

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Rent-seeking
Predation

Theft
Austrian Conundrums of Their Own
Making

Universal nature of alertness

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Extreme subjectivism


Is entrepreneurship something that can be cultivated? Is
there a supply curve for entrepreneurship?
Wealth creation is not about material progress, but utility
gains. Thus, what does it mean to discuss wealth creation
as a goal of public policy?
Anti-equilibrium

Since the preoccupation with equilibrium ignores change as
a consequence of formalism does that mean that all
attempts to explain mechanism and processes that tend
toward an equilibrium must be rejected as too mechanistic
and not grounded in human action?

Issue of context dependence
The Multifaceted Explanation for
Development

Economic/Financial

Economic Calculation

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Political/Legal

Constraining Predation
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Risk Assessment
Financial intermediation
Rule of law
Constitutionalism
Social/Cultural

Liberalism

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Individualism
Egalitarianism in process not results