Chapter 6 readings notes

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Lecture 6: Sources of Economic Growth and Productivity Increases, emphasis on tech. change
6.1: Productivity and Growth – Canadas competitive Roots
Productivity and growth closely tied together
Economy will grow as more inputs added
Most of growth per capita output is result of improvements in technology
Without productivity growth, output growth would be slower
Aggregate economy must show productivity inprovements for higher standard of living
Long run competivieness of Canadian economy depends on ability to increase productivity
Competitiveness is ability to sell products in particular markets
Countrys competivieness is combination of level of input and output prices and productivity level
Changes in competitiveness because of changes in these prices and in productivity relative to other
II simple analytics of productivity and growth
More refinements in the me a surement of the q u ality of inp u ts will red u c e resid u al
Stock of kn owled g e co n ti n u es to grow, n o t a costles s proc e s s
Residu al me a sure of pro d u ctivity is n o t a p ure me a sure of te c h nic al chan g e exc e pt in limit ed
circumstanc e s
Factors like imperfe c t competi tion, incre a sing returns, reg ulatio n an d o ther g ov ernmental an d
behavioural ch oic e s o n pro d u ctivity h ave co n seq u enc e s
6 fac ts ab o u t e c o n o mic growth
1)Outp u t p er worker sh ows co n tin uin g growth wit h n o ten d ency for falling rate of g rowth of
pro d u ctivity
2)Capit al p er worker sh ows co n ti n uin g g rowth
3)Rate of return o n c a pit al is ste a d y
4)Capit al to o utp u t ratio is ste a d y
5)Lab o ur and c a pit al re c eive co n stant shares of total income
6)Wide differenc e s in rate of g rowth of pro d u ctivity a cros s co u n tries
Some evidence that rate of return to capital is declining, income shares changing
More regularities
7)In cross section, mean growth rate shows no variation with level of per capita income
8)Growth in volume of trade positively correlated with growth in output
9)Rate of growth of factor inputs not large enough to explain rate of growth of output
Role of trade important in increasing real income
These are facts new growth models try to incorporate
Older growth models assumed sdavings rate and rate of technical profess to be exogenous
All models require scarce resources be devoted to some activity to produce directly or indirectly
technical advance
III empirical evidence on growth and productivity
Input quantities: labou r, capital, materials
If productivity and growth policy concerns then it is imp. To tknow current level of real income
Caanada has one of the highest levels of GDP per capita
Inability of OECD countries to grow rapidly in last 20 years is big concern
1891-1910 output grew rapidly
1910-26 growth of output, labour,capital slowed
Improved growth in factor productivity offset by decline in growth of labour input, doubling of c
growth rate
Tfp growth improved, reinforced by improvement in growth of capital labour ration
Two factors resulted in labour productivity growing at rate of over 3%
1870-1979 canadas output per person hour grew by factor of 11
economic growth can be viewed from de mand side or supply side
balanced growth rate can be achieved only if both demand and supply grow without distrup
output in longrun should be equal to aggregate demand
demand side: small country relies on exports in order to grow
developing international competitiveness crucial to ensuring demand growth
Y = C + I + G + [EX-IM]
Aggregate demand Y is sum of consumptions [C], investment [I], govt expenditures [G], net
exports [EM-IM]
Supply side: accumulation of capital in form of modern factoriea and machines is imp for
increasing productive capacity
Source approach to analyzing growth looks at outout from supply side
Attempts to decompose growth of putput into growth of factors od production, and to determ
relative contributions of each productive factor
Output viewed from supply side shown as production function dependant on inputs of capita
labor [L] and technological level [A]
Y= F(K,L,A)
Growth can occur through capital accumulation
Through increases in working hours + employment
Through technological progresses engancing productivity of excisting capital and labour
Must decompose growth contributions from these growth factors
Japan had higher (absolute) contribution to tis growth rate from all 3 factors and from all
components of these factors
High growth rate of Japan depends on all 3 major factors
3 subcategories contributed more to US growth (absolute) than to growth in Japan number of
employed persons, education , international assets
hours component of labor positive contributor to growth in Japan not US (50s-60s)
Capital accumulation more imp than labour in japan
Absolute + relative contribution of capital in japan diminished in 70s
Over half of Japan growth because of technological progress and residuals
Tech. subcategories: knowledge (Japan)= improvements in avg state of technology, better b
organizations, improvements in management practices