Download Understanding Economic Growth David N. Weil Brown University

 Understanding Economic Growth David N. Weil Brown University and NBER Johns Hopkins SAIS, April 18, 2013 The Parade of World Income GDP per Capita in the United States, 1870–2009 GDP per Capita in the United States, the United Kingdom, and Japan, 1870–2009 1-­‐5 GDP per Capita by Country Group, 1820–2008 The DistribuUon of Growth Rates, 1975–2009 World Inequality and Its Components, 1820–1992 Copyright © 2009 Pearson EducaUon, Inc. Publishing as Pearson Addison-­‐Wesley 1-­‐8 How do we explain all this stuff? What would a proper explanaUon even look like? Earth as Viewed by Aliens How do we explain all this stuff? What would a proper explanaUon even look like? How do we put quanUtaUve flesh on such an explanaUon? Proximate vs. UlUmate Causes: The Death of Emma Bovary • 
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ConsumpUon of arsenic Desire to commit suicide Infidelity and financial ruin Unrealizable romanUc feelings Limited role for women in 19th Century French bourgeois society My Approach Proximate Determinants AccumulaUon of Factors of ProducUon Economic Growth ProducUvity My Approach Proximate Determinants UlUmate Determinants AccumulaUon of Factors of ProducUon 1. _________ Economic Growth 2. ________ ProducUvity 3. ________ etc. Factor AccumulaUon: Intellectual Underpinnings • 
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Thomas Malthus Robert Solow Joseph Stalin W. W. Rostow The World Bank Mankiw, Romer, and Weil (1992) Saving Rate by Decile of Income per Capita RelaUonship between Income per Capita and PopulaUon Growth Aside: The Effect of Reduced FerUlity on Economic Growth •  One of the oldest quesUons in development economics •  Decades of ideological conflict •  Hard to answer because ferUlity is endogenous •  Decades of intellectually flawed agempts to address (cross-­‐country regressions – yeech!) •  Recently published paper by Ashraf, Weil, and Wilde (Popula'on Development Review, 2013) provides an answer UN Medium and Low Variant FerUlity Scenarios for Nigeria Effect of changing from the UN medium ferUlity scenario to the UN low ferUlity scenario Average Years of Schooling Versus GDP per Capita Student Test Scores Versus GDP per Capita Life Expectancy Versus GDP per Capita How do we QuanUfy the Impact of Factor AccumulaUon? Output per Workeri = Factors of Production per Workeri × Pr oductivityi
Output per Workeri ⎛ Factors of Production per Workeri
= ⎜
Output per Worker j ⎜⎝ Factors of Production per Wor ker j
⎞ ⎛ Pr oductivityi ⎞
⎟⎟ × ⎜⎜
⎟⎟
Productivity
j ⎠
⎠ ⎝
How do we know “structural” effects of factor accumulaUon? •  Factor accumulaUon raises income •  Income raises factor accumulaUon •  Different approach for each factor: Physical capital look at rent on capital EducaUon look at “returns to schooling” (ala Mincer) Health look at “returns to health” Aside #2: Measuring the Returns to Health •  taller people earn more –  but that is not structural •  mad scienUst approach –  vary health exogenously, look at effect on income –  but that is not ethical •  natural experiment approach Measuring Returns to Health Using Twins Development AccounUng for Mexico Output per Worker Physical Capital per Worker Human Capital per Worker
Factors of ProducUon per Worker
ProducUvity 0.35 0.33 0.84 0.61 0.56 Data for year 2009. All quanUUes relaUve to United States. Factors of ProducUon vs. ProducUvity as ExplanaUons for InternaUonal Income Differences The Conceptual Framework Factors of ProducUon per Worker Output per Worker ProducUvity The Conceptual Framework Factors of ProducUon per Worker Output per Worker Technology ProducUvity Efficiency Conceptual Framework for ProducUvity Productivityi = Technologyi × Efficiencyi
Productivityi ⎛ Technologyi ⎞ ⎛ Efficiencyi
= ⎜
⎟⎟ × ⎜⎜
⎜
Productivity j ⎝ Technology j ⎠ ⎝ Efficiency j
⎞
⎟⎟
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•  Analysis can be applied either between countries or over Ume For changes in income over Ume in leading countries, technology is almost certainly the big story. •  We observe the introducUon of new technologies and their producUve effects -­‐-­‐ steam engine, network electricity, ICT, etc. •  Leaves open many interesUng quesUons about future of technological progress -­‐-­‐ Robert Gordon and the “toilet test” The Mysterious “Chad Jones Fact” •  For differences between countries in income, technology is not the big story Why: Poor countries would have to be too many years behind (viz. India: 75 years) •  For differences between countries in income, technology is not the big story Why: Poor countries would have to be too many years behind (viz. India: 75 years) So for cross-­‐country differences in producUvity, we have to look to efficiency Factors of ProducUon per Worker Output per Worker Technology ProducUvity Efficiency ProducUvity in Selected Industries in the Early 1990s Some Examples of Inefficiency •  Central Planning •  Margarine Some Examples of Inefficiency • 
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Central Planning Margarine Firemen in LocomoUves State Owned Enterprises RestricUons on InternaUonal Trade Determinants of Efficiency (very parUal list) •  InsUtuUonal Framework •  Trade RestricUons (legal or physical) •  Barriers to Mobility (of factors) •  Monopolies •  Government Ownership of Firms •  FuncUoning of Financial System Government CorrupUon Versus GDP per Capita, 2009 Rule of Law and Factor AccumulaUon, 2009 Rule of Law and ProducUvity, 2009 Why Do Poor Countries Have Bad Governments? •  Theory #1: Endogenous Gov. Quality •  Theory #2: Colonial Legacy •  Theory #3: Slowly Changing Culture •  Bogom line: we sUll don’t know if “it is all government / insUtuUons” Historical Determinants of Current InsUtuUons (Pugerman and Weil) 20 Years of Growth Empirics on One Slide SS Income = f(producUvity, rates of factor accumulaUon) (+) (+) Growth = f(SS Income, Current Income) (+) (-­‐) PredicUons: China, N. Korea