Download Growth Comes in Spurts Balloon dynamics vs. Structural dynamics

Structural Dynamics
Stylized Facts
• Persistence of large Inequalities in the
world economy
▫ Episodes of convergence associated with labor
reallocation from low to high productivity sectors
subject to IRS.
▫ High concentration of technology, world finance
and MNCs
Growth of Per capita GDP
• Growth Comes in Spurts
▫ Balloon dynamics vs. Structural dynamics
▫ Balloon dynamics-sectoral composition
changes are result of GDP/capita dynamics
▫ Structural Dynamics—innovation-new
sectors—structural changes
Frequency of Sustained Growth and
Collapses
Development Cycle
• Elastic Factor Supplies for dynamic sectors
▫ FDI
▫ Labor (Lewis Model)
▫ Growth—interplay of labor mobility and IRS.
• Path Dependence
▫ Dismantling production structures have long term
implications—IS and Dutch Disease
▫ Macroeconomic shocks (debt Crisis)
Real Interest Rate Shock
Terms of Trade Shocks
• Economic policy
▫ Macro policy and structural reforms
▫ High Inflation
▫ Relative prices (real r and E) may hurt investment
and LR growth
▫ Trade policy—connection between liberalization
and growth and exports growth murky.
Dynamics of Production Structures
• Dynamics of Production Structure arte at Root
of economic growth:
• Innovations
• Networks, Linkages,…including Elastic
Factor Supplies
• In Industrial countries, innovations driven by
super profits
• Developing countries super profits=0
• Innovations thus entail spreading of
technologies already established in Industrial
Countries
• Transfer of sectors from the industrial world
• Innovations require high investment
• Learning—Evolutionary theories of technical
change
▫ Technology is incompletely available and
imperfectly tradable
▫ Learning by doing
▫ Private/Public Good attribute (third Italy)
Networks
• Demand effects; Keynesian Multiplier
• Supply Effects-Economies of Agglomeration and
Specialization
• Provision of Essential Non-Tradables
▫ Production od specialized inputs
▫ Specialized financial services
▫ Infrastructure
Elastic Factor Supplies (K and L)
• Essential for innovation and growth
• How can we increase K:
▫ Existence of unemployed or underemployed
recourses
▫ Endogenous financing of capital through
redistribution of income towards profits
▫ Social organization that guarantees higher LF
participation especially women
▫ Interregional and International factor mobility
▫ Technical change that breaks factor supplies
constraints (land productivity, capital intensive)
•
•
•
•
L?
Dual Structure
International labor migration
The dynamism generated by innovative activities
lead to Kaldorian growth productivity links
Interplay of innovations, networks and
elastic labor supplies
• Innovation + strong networks----absorption of
increasing number of workers into dynamic
activities
• Alternatively, destructive forces---slowdown in
productivity, decline in I, increased dualism as
surplus labor absorbed into low productive
activities and a loss of production experience
that widens the technology gap with
industrialized countries.
Complem Strong
entarities
Learning Strong
Deep
process
Weak
Labor
Absorbin
g (laborintensive
exports)
Weak
Short
Breath
Shallow
(export
enclaves)