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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)