ECON 6280 Lecture Notes - Lecture 4: Conditional Convergence, Human Capital, Agency Cost
Document Summary
Econ 6280 class 4: contemporary models of development. Old theories do not explain the differences in key parameters (e. g. why are the saving rates in china higher?) In the solow model, the k is supposed to travel from rich countries to the poor countries, but in reality, poor countries are investing in the rich (e. g. sierra leon is investing in the u. s. ). Possible explanations: secure, less risk of corruption, human capital (more productive) Human capital and growth (mankiew, romer, and weil 1992) Rich countries accumulate both physical and human capital, which leads to more growth than before. When we take into account the differences in human capital, we have convergence as solow model predicts ((cid:862)conditional convergence(cid:863)) Human capital + democratic/free market (aka meritocratic liberal market) = growth/continued investment. Invest in r&d new products (e. g. u. s. and japan: diffusion of knowledge catching up to the technological frontier (e. g. africa)
