Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic democracy wikipedia , lookup
Ragnar Nurkse's balanced growth theory wikipedia , lookup
Production for use wikipedia , lookup
Rostow's stages of growth wikipedia , lookup
Okishio's theorem wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Refusal of work wikipedia , lookup
Productivity wikipedia , lookup
Economic growth wikipedia , lookup
Productivity Chap. 4, The Theory of Aggregate Supply Income depends on Output, Output depends on productivity and labor GDP, Y, is value produced. GDP can be decomposed: Yt Yt Lt POPt Lt POPt L = Labor is defined as hours worked. Main concern in this chapter is productivity Income per person, 2003 Groningen Growth & Development Center http://www.ggdc.net GDP per Person 160.00 140.00 HK = 100 120.00 100.00 80.00 60.00 40.00 20.00 0.00 Hong Kong Singapore South Korea Taiwan Japan USA France Productivity GDP per Hour Worked 200.00 180.00 160.00 HK = 100 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 Hong Kong Singapore South Korea Taiwan Japan USA France Employment Hours Worked per Capita 120.00 100.00 HK = 100 80.00 60.00 40.00 20.00 0.00 Hong Kong Singapore South Korea Taiwan Japan USA France Production Factors of Production Capital Output Technology Labor etc. Factors of Production: Capital Capital (Kt) is the stock of durable goods (machines, equipment, buildings, etc.) used to produce other goods. Unit of measure is dollar-value. Difficult to measure directly, so it is defined indirectly. Stock vs. Flow Stock: Some variable that accumulates. Flow: Channel of increase or decrease of a stock. Example Stock: Government Debt Flow: Government Revenue, Government Expenditure Example Capital Flow: Investment (It), Depreciation (Dpnt) Stocks and Flows Figure 2.6 ©2002 South-Western College Publishing Capital is Defined Recursivel Perpetual Inventory Method Kt 1 Kt I t Dpnt Method requires some initial guess at capital stock. As original guess capital depreciates, measure becomes more accurate. Constant Depreciation Rate Kt 1 Kt It dKt (1 d ) Kt I t Hong Kong Investment to Capital Ratio Investment to Capital Ratio (d = .09) 0.25 0.2 0.15 0.1 0.05 20 02 # 20 00 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 0 Hong Kong capital stock Capital 3500000 3000000 2500000 2000000 1500000 1000000 500000 0 80 9 1 82 9 1 84 9 1 86 9 1 88 9 1 90 9 1 92 9 1 94 9 1 96 9 1 98 9 1 00 0 2 2# 0 20 Productivity: Two Concepts There are two basic measures of productivity. 1. 2. Average Productivity: The average productivity of a factor is output divided by amount of factor used. Y Y , L K Marginal Productivity: The extra output that would be produced if an extra unit of a factor were used. Y Y , L K Capital Productivity 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Hong Kong EU USA Aggregate Production Function Assume aggregate output can be written as an algebraic function of the aggregate factors. Y F ( K , L ) t t t t Technological change over time is represented as a scaling factor, Qt. Yt F (Qt , Kt , Lt ) Example: Cobb-Douglas Yt K t (Qt Lt )1 a a Marginal Productivity of Labor Holding capital constant, the effect on GDP of increasing labor by a small amount. Y = F(L) MPL = ΔY/ΔL The slope of the production function For very small increases in labor, can be calculated with first derivative of output with respect to labor. MPL = F’(L) Diminishing returns suggests that if you hold one factor constant, marginal returns are a diminishing function. Production Function (fixed K) Y ΔY ΔY ΔL ΔL L Marginal Productivity Function (fixed K) MPL MPL L Marginal Productivity Function (fixed L) MPK MPK K Advantages of Cobb-Douglas Production Function Constant Returns to Scale If you increase both capital and labor by a factor of N, then you will also increase output by a factor of N Yt Kt (Qt Lt )1 a N Yt N K t (Qt N Lt )1 a a a Implications for Country Size: Output per capita depends only on capital per capita and labor per capita, not ona population Kt Yt Lt 1 a size itself. (Q ) POPt POP t t POPt Productivity Function Labor productivity is a function of technology and the capital-labor ratio. Yt Kt (Qt Lt ) yt Lt Lt 1 a a Kt Lat a 1 a (Qt Lt ) L1ta Kt a 1 a (Qt Lt ) Lat L1ta a Kt 1a Qt kta Qt1a Lt Advantages of Cobb-Douglas Production Function Average Product & Marginal Product Under Cobb-Douglas, the marginal product is proportional to average product. Y MPL (1 a) K Q L (1 a ) L Y a 1 1 a MPK a K (QL) a K a 1 a a All intuition about things that change average productivity carry-over 1-to-1 to marginal productivity. Advantages of Cobb-Douglas Production Function Log-linear Take natural log of output Yt K t (Qt Lt )1 a ln Yt ln K t a ln Qt1 a ln Lt1 a a ln Yt a ln K t (1 a) ln Qt (1 a) ln Lt Growth rate of output is a linear function of the growth rate of capital, labor, and technology. ln Yt a ln K t (1 a) ln Qt (1 a) ln Lt ln Yt 1 a ln Kt 1 (1 a) ln Qt 1 (1 a) ln Lt 1 gtY agtK (1 a) gtQ (1 a) gtL Marginal Product = A firm can raise its profits by increasing Marginal Cost labor as long as the Profit maximization suggests that the marginal product of a factor should equal its real cost. The real cost of labor is the real wage, the dollar wage rate divided by the price level. Wt MPL Pt cost of the extra labor is less than the extra goods produced. Since the extra goods produced drops as more labor is added, firms will hire more labor until the marginal product falls as low as the real wage. Labor Demand Schedule (fixed K) W/P MPL L Advantages of Cobb-Douglas Production Function Factor Shares Labor compensation is the product of the wage rate and the quantity of labor WtLt. Wt Yt (1 a) Wt Lt (1 a) PY t t Pt Lt Income left over to owners of capital is also a constant share of output a∙Yt Implications Labor share of income (labor intensity) is equal to the ratio of the marginal product of labor to the average product. Wt Wt Lt Pt MPLt Y L Y Y 1 a Yt Y L PY APLt t t L L Lt Mar-98 Mar-96 Mar-94 Mar-92 Mar-90 Mar-88 Mar-86 Mar-84 Mar-82 Mar-80 Mar-78 Mar-76 Mar-74 Mar-72 Labor Intensity ≡1- a ≈2/3 Labor Share of Income 0.8 0.7 0.6 0.5 0.4 USA JAPAN 0.3 0.2 0.1 0 Total Factor Productivity Total factor productivity measures the total effectiveness of an economy in applying all of its factors of production. TFP is a geometrically weighted average of capital and labor productivity with factor WL intensity, at and 1-at = PY used as weights. [1 at ] Yt TFPt Lt Yt Kt at Wt Lt [1 at ] PY t t TFP Growth at TFP linear [1 at ] Yt Yt TFPt is log Lt Kt ln TFPt at ln Yt Y (1 at ) ln t Lt Kt ln TFPt at ln Yt ln Lt (1 at ) ln Yt (1 at ) ln Kt ln TFPt ln Yt ln Lt (1 at ) ln K t TFP growth rate is the gap between GDP growth rate and the weighted average of the growth rate of the factors of production. ln TFPt ln TFPt 1 ln Yt ln Yt 1 (1 at )[ln Lt ln Lt 1 ] at [ln K t ln K t 1 ] tTFP tY at tL (1 at ) tK TFP Growth Rates over time 1.4% 1.2% 1.0% 0.8% 1980-1995 0.6% 1995-2001 0.4% 0.2% 0.0% USA EU Advantages of Cobb-Douglas Production Function TFP equals technology If production is according to CobbDouglas, then TFP directly measures technology. at =a. 1 a Yt TFPt Lt [a] Yt Kt Yt 1 a a Lt K t K t a Qt Lt 1 a Lt1 a K t a Qt1 a Growth Accounting When we measure growth, we might want to determine if this is caused by capital growth, labor growth or capital growth. Growth caused by gY Capital a×gK Labor (1-a)×gL Technology gTFP The East Asian Miracle 1965-2001 Output Growth Rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Hong Kong Singapore South Korea Taiwan USA Myth of the East Asian Miracle Alwyn Young, QJE 2001 TFP Growth Rates 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Hong Kong Singapore South Korea Taiwan USA EU Criticisms Critics of Young’s work that because of data mismeasurement, they assumed that East Asian production functions were different (greater capital intensity) than developed economies. Even using same production functions, most East Asian growth differentials are due to factor accumulation not TFP growth. One key point, capital productivity was declining in East Asia over this time period. Growth Accounting: 1965-2000 12.0% 10.0% 8.0% TFP 6.0% Labor Capital 4.0% 2.0% 0.0% Hong Kong Singapore South Korea Taiwan USA Capital Productivity Capital Productivity 0 Hong Kong -0.005 -0.01 -0.015 -0.02 -0.025 -0.03 Singapore South Korea Taiwan USA