ECON 416 Lecture Notes - Lecture 1: Total Factor Productivity, Robert Solow, Least Developed Countries

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Productivity, entrepreneurship and private sector development in least developed countries. Gross domestic product (gdp): value of all goods and services produced in a country. Gdp per capita: key indicator of economic wellbeing. Increase in gdp per capita = increase average income. Gdp = inputs x total factor productivity (tfp) Even with the same inputs (machinery, labor, etc). Decrease in tfp = decrease in gdp per capita. Robert solow (1956): tfp growth at least as important as growth of inputs in explaining economic growth. Tfp growth as technological progress: long-run determinant of income growth. Evolution of gdp per capita: limited evidence of convergence. Cross country differences in gdp per capita, largely due to tfp differences. Meaning, yi = ai f(ki, li, mi) Just like four countries, also for firms: output = inputs x tfp where yi is real output of firm i, and ki/li/mi are capital, labor, and material used in production.

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