ECONOMIC GROWTH

1st Module, 2002 / 2003

Professor: Omer Moav

TA: Evgeniya Zhabitskaya, evishnev@nes.ru

Course description

In the first part the course would focus on the neo-classical growth model, over-lapping-generations growth model, and models of endogenous investment in research and development. The second part of the course would concentrate on the study of interrelations between income inequality and economic growth, focusing on saving rates, investment in human capital, intergenerational mobility, fertility, and the effect of technology on the return to education and ability. The final part of the course would offer explanations for the long run transition from Malthusian stagnation to modern growth. 

Assessment

Problem sets (30%) and a final exam (70%) would determine the final grade.

Reading list and syllabus

Recommended textbooks:

Romer D. 2001 (2^nd edition), Advanced Macroeconomics, McGraw-Hill.

Aghion, P. and P. Howitt, 1997, Endogenous Growth Theory, MIT Press.

Grossman G. and H. Helpman, 1991, Innovation and Growth, MIT Press.

Azariadis, C., 1993, Intertemporal Macroeconomics, Blackwell.

Basu, K., 1997, Analytical Development Economics, MIT Press.

Barro, R. and X. Sala-i-Martin, 1995, Economic Growth, McGraw-Hill.

I. Neoclassical Growth Models

1.       The Representative Agent Approach

Solow, R.M., 1956, "A Contribution to the Theory of Economic Growth", Quarterly Journal of Economics, 70, 65-94.

Cass, D., 1965, "Optimum Growth in an Aggregative Model of Capital Accumulation", Review of Economic Studies, 32, 233-240.

2. The Overlapping-Generations Approach

Diamond, P.A., 1965, "National Debt in a Neoclassical Growth Model,' American Economic Review, 55, 1126-1150.

Galor, O. and H.E. Ryder, 1989, "Existence, Uniqueness and Stability of Equilibrium in an Overlapping-Generations Model with Productive Capital," Journal of Economic Theory, 49, 360-375.

II.                  Endogenous Growth Models

Frankel, M., 1962, “The Production Function in Allocation and Growth: A Synthesis” American Economic Review, 52, 995-1022.

Uzawa, H. (1965) “Optimum Technical Change in an Aggregate Model of Economic Growth” International Economic Review, 6, 18-31.

Rebelo S., 1991, “Long-Run Policy Analysis And Long-Run Growth” Journal of Political Economy, 99, 500-521.

Jones, L. and R. Manuelli 1990, “A Convex Model of Equilibrium Growth: Theory and Policy Implications,” ” Journal of Political Economy, 98, 1008-1038

Romer, P., 1986, "Increasing Returns and Long-Run Growth", Journal of Political Economy, 94, 1002-1037.

Lucas, R.E., 1988, "On the Mechanics of Economic Development", Journal of Monetary Economics, 22, 3-42.

Romer, P., 1990, "Endogenous Technological change", Journal of Political Economy, 98, 71-102.

Aghion, P. and P. Howitt, 1992, "A Model of Growth Through Creative Destruction," Econometrica, 60, 323-353.

Grossman G. and H. Helpman, 1991, Innovation and Growth, MIT Press.

Jones, C., 1995, “R&D-Based Models of Economic Growth,” Journal of Political Economy, 103, 759-784.

Aghion, P. and P. Howitt, 1997, Endogenous Growth Theory, MIT Press.

III. The Convergence Debate

1. Absolute Convergence – Refuting Evidence

Baumol, W., 1986, Productivity Growth, Convergence, and Welfare," American Economic Review, 76, 1072-1085.

De Long, Bradford, 1988, Productivity Growth, Convergence and Welfare: Comment," American Economic Review, 78, 1138-1154.

Quah, D. 1996, “Twin Peaks: Growth and Convergence in Models of Distribution Dynamics,” Economic Journal, 106, 1045-1055.

2.       Conditional Convergence

2.1. Theories

Barro, R. and X. Sala-i-Martin, 1995, Economic Growth, McGraw-Hill.

2.2. Empirical Evidence

Barro, R.J., 1991, "Economic Growth in a Cross Section of Countries," Quarterly Journal of Economics, 106, 407-444.

Mankiw, N.G., D. Romer, and D. Weil, 1992, "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, 107, 407-438.

Caselli, F., Esquivel, G. and Lefort, F., 1996, ``Reopening the Convergence Debate: a New Look at Cross-Country Growth Empirics,” Journal of Economic Growth, 1, 363-90.

3.  Club Convergence:

3.1. Theories

Azariadis, C., 1996, “The Economics of Development Traps,” Journal of Economic Growth, 1, 449-486.

Galor, O., 1996, “Convergence? Inferences From Theoretical Models,” Economic Journal, 106, 1056-1069.

3.2. Empirical Evidence

Durlauf, S. and P. Johnson, 1995, "Multiple Regimes and Cross-Country Growth Behavior," Journal of Applied Econometrics, 10, 365-384.

Quah, D. 1997, “Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs,”  Journal of Economic Growth, 2, 27-60.

Durlauf, S. and D. Quah, 1999, “The Empirics of Economic Growth” Handbook of Macroeconomics. North-Holland.

IV.  Income Distribution and Economic Growth

1.       The Classical Theories

Kaldor, N., 1956, “Alternative Theories of Distribution”, Review of Economic Studies, 23, 83-100.

Kuznets, S. (1955), “Economic Growth and Income Equality,” American Economic Review, 45, 1-28.

Bourguignon, F., 1981, Pareto Superiority of Unegalitarian Equilibria in Stiglitz' Model of Wealth Distribution With Convex Saving Function, Econometrica, 49, 1469-75.

2.       The Modern Theories

2.

2.1. The Capital Markets Imperfections Approach

Galor, O. and J. Zeira, 1993, "Income Distribution and Macroeconomics" Review of Economic Studies, 60, 35-52.

Mookerjee, D. and D. Ray, 2001, Introduction in Readings in the Theory of Economic Development, Blackwell. pp 1-28.

2.1.1. Investment Projects

Banerjee, A. and A. Newman, 1993, Occupational Choice and the Process of Development," Journal of Political Economy, 58, 211-235.

2.1.2.   Community Choice

Durlauf, S., 1996, "A Theory of Persistent Income Inequality," Journal of Economic Growth, 1, 75-93.

Benabou, R., 1996, “Equity and Efficiency in Human Capital Investment: The Local Connection,” Review of Economic Studies, 63, 237-264.

2.1.3. Social Status

Fershtman, C., Murphy, K., and Y. Weiss, 1996, "Social Status, Education and Growth," Journal of Political Economy, 104, 108-132.

2.1.4.  Endogenous Fertility

Dahan, M. and D. Tsiddon, 1998, ``Demographic Transition, Income Distribution, and Economic Growth”, Journal of Economic Growth, 3, 29-52.

Moav O. “Cheap Children and the Persistence of Poverty” CEPR Discussion Paper No. 3059, November 2001.

2.1.5 The role of non-convexities

Moav O. “Income Distribution and Macroeconomics: The Persistence of Inequality in a Convex Technology Framework,” Economics Letters, April 2002, 75, 187– 192.

2. 2. The Socio-Political Economy Approach

Alesina A. and D. Rodrik, 1994, "Distributive Politics and Economic Growth,” Quarterly Journal of Economics, 465-490.

Persson T. and G. Tabellini, 1994, "Is Inequality Harmful for Growth?: Theory and Evidence", American Economic Review 84, 600-621.

Benabou, R. 2000, “Unequal Societies: Income Distribution and the Social Contract” American Economic Review 90, 96-129.

2.3. Social Mobility and Growth

Galor, O. and D. Tsiddon, 1997, "Technological Progress, Mobility and Growth,” American Economic Review, 87, 363-382.

Hassler, J. and J. Rodriguez Mora, 2000, ``Intelligence, Social Mobility, and Growth,'' IIES, Stockholm. American Economic Review, 90, 888-908.

Maoz Yishay and Omer Moav, 1999, “Intergenerational Mobility and the Process of Development,” The Economic Journal, 109, 677-697.

3.  Empirical Evidence

Perotti, R., 1996, “Democracy, Income Distribution and Growth: What the Data Says,” Journal of Economic Growth, 149-187.

Forbes, K., 2000, “A Reassessment of the Relationship Between Inequality and Growth,” American Economic Review, 90, 869-887.

Barro, R., 2000, “Inequality and Growth in a Panel of Countries, Journal of Economic Growth, 5 5-32.

Banerjee A. and Duflo E., 2000, “Income Distribution and Growth: What can the Data Say” MIT.

4.  Reconciliation between Clasical and Modern Theories

Galor, O and O. Moav, O., 2000, ``From Physical to Human Capital Accumulation: Inequality in the Process of Development”.

V. Technological Progress and Wage Inequality

1.                   Empirical Evidence

Katz, L. F. and K. M. Murphy, 1992, ``Changes in Relative Wages 1963-1987: Supply and Demand Factors,'' Quarterly Journal of Economics, 107, 35-78

Goldin, Claudia and Lawrence F. Katz, 1998, ``The Origins of Technology-Skill Complementary,'' Quarterly Journal of Economics, 113, 693-732.

Goldin, C. and L. F. Katz, 1999, ``The Return to Skill across the Twentieth century United States,'' NBER Working Paper 7126.

2. Macro Theories

Galor, O. and D. Tsiddon, 1997, ``Technological Progress, Mobility and Growth,” American Economic Review, 87, 363-382.

Caselli, F., 1999, ``Technological Revolution,” American Economic Review, 89, 78-102.

Acemoglu, D., 1998, ``Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality'' Quarterly Journal of Economics, 113, 1055-1089.

Galor, O. and O. Moav, 2000, ``Ability biased Technological Transition, Wage Inequality an Economic Growth,” Quarterly Journal of Economics, 115, 469-498.

Rubinstein Y. and D. Tsiddon, 1998, ``Coping with Technological Progress: The Role of Ability in Making Inequality so Persistent,” Tel-Aviv university.

Acemoglu, D. 2002, “Technological Change, Inequality, and the Labor Market,” Journal of Economic Literature, forthcoming.

Gould E., O. Moav and B. Weinberg, 2001, “Precautionary Demand for Education, Inequality and Technological Progress”), Journal of Economic Growth 6, 285-316.

VI.          From Malthusian Stagnation to Sustained Growth

1.       Historical Evidence

Cameron, R., 1989, A Concise Economic History of the World from Paleolithic Times to the Present. Oxford University Press.

Livi-Bacci, M., 1997, A Concise History of World Population, Oxford: Blackwell.

Maddison, A., 1982, Phases of Capitalist Development. Oxford University Press.

Mokyr, Joel., 1990, The Lever of Riches, Oxford University Press.

Diamond, Jared, 1997, Guns, Germs, and Steel: The Fates of Human Societies.

2. Partial Theories

2.1. The Malthusian Regime

Malthus, T. R., 1978, An Essay on the Principle of Population.

Kremer, M., 1993, "Population Growth: 1 Million B.C. to the Present," Quarterly Journal of Economics, 108, 681-716.

Goodfriend, Marvin, and John McDermott. ``Early Development" American Economic Review 85:1, March 1995, 116-133.

2.2.  The Modern Growth Regime

Barro, R.J. and G.S. Becker, 1989, "Fertility Choice in a Model of Economic Growth" Econometrica, 57, 481-502.

Becker, G.S., K. M. Murphy, and R. Tamura, 1990, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy, 98, S12-S37.

2.3. From the Demographic Transition to Modern Growth

Galor, O. and D. Weil, 1996, "The Gender Gap, Fertility and Growth", American Economic Review, 86, 374-387.

Dahan, M. and D. Tsiddon, 1998, ``Demographic Transition, Income Distribution, and Economic Growth”, Journal of Economic Growth, 3, 29-52.

3. Unified Theories:

Galor, O. and D. Weil, 1999, “From Malthusian Stagnation to Modern Growth,” American Economic Review, 88, 150-154.

Galor, O. and D. Weil, 2000, “Population, Technology, and Growth: From the Malthusian Regime to the Demographic Transition and Beyond,” American Economic Review, 89, 806-828.

Lucas, R. Jr., 2001, The Industrial Revolution. Manuscript, University of Chicago.

Hansen G. and E. Prescott, 2001, “Malthus to Solow”. University of Minnesota.

Jones, C., 2001, Was the Industrial Revolution Inevitable? Economic Growth Over the Long-Run”. Stanford University.

VII. Darwinian Evolution and Economic Growth

Dawkins R., 1987, The Selfish Gene.

Galor O. and O. Moav, 2001, Natural Selection and the Origin of Economic Growth”.

VIII. Institutions and Political Transitions

North, Douglas C.,1981, Structure and Change in Economic History, W. W. & Co., New York. Norton

North, Douglass C., 1990, Institutions, Institutional change, and Economic Performance, Cambridge University Press.

Acemoglu D. and J. Robinson, 2000, Why did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective,” Quarterly Journal of Economics, 115, 1167-1200.

Galor, O., and O. Moav, 2001, “Das Human Kapital,” CEPR Discussion Paper No. 2701.