ECON 6280 Lecture Notes - Lecture 3: Unconditional Convergence, Virtuous Circle And Vicious Circle, Conditional Convergence
Document Summary
Econ 6280 class 3: classic theories of economic development. Invest capital (e. g. time) to produce physical capital (e. g. Invest capital (e. g. time) to produce physical capital (e. g. bows and arrows) to save time and become more productive (e. g. catch more fish). Y is income/production, l is factors of labor and k is the physical capital. But does(cid:374)"t tell us (cid:449)hy a(cid:272)(cid:272)u(cid:373)ulatio(cid:374) of k (cid:448)aries (cid:271)et(cid:449)ee(cid:374) (cid:272)ou(cid:374)tries. Models: the harrod-domar model (hd) 1945, solow model (neoclassical growth) 1956, the lewis two-sector model 1954, the international-dependence revolution. Economic growth comes from investment and saving: save & invest -> unlimited growth: the harrod-domar model in context of the cold war. Assumes that y=consumed (c) or saved (s) and that saving = investment. Capital stock (k) increases if investment > depreciation (loss of the value of a good) Capital-output ration (icor): = k(t) / y(t): amount of k required to produce y. Policy implications: encourage saving and efficiency (lower )