History of Economic Growth

Question 1

What’s the intro for history of economic growth?

Answer 1

Define economic growth
Historical significance
Two main dimensions
Structure of essay

Question 2

What’s economic growth?

Answer 2

An increase in real GDP over time

Question 3

What’s the historical significance of economic growth?

Answer 3

Little until relatively recently - Important to improve living standards.

Question 4

What are the two main dimensions of the history of economic growth?

Answer 4

Theoretical frameworks
Institutional influences

Question 5

What’s the structure of the essay?

Answer 5

Measuring economic growth
Theories of economic growth
Institutions and economic growth
Approaches to institutional development

Question 6

What are the main points in measuring economic growth?

Answer 6

Purpose: explain how economists quantify growth.
Real GDP
PPP
Growth accounting
Challenges

Question 7

What’s GDP and how is it measured?

Answer 7

Discussion of growth relies on the ability to generate output indexes.
GDP can be calculated by:
Expenditure approach: Y = C + I + G + NX
Income approach: Y = wL + rK + rents
Production approach: Sum of 1 to n PnQn - intermediate inputs

Question 8

How is GDP get transformed to real GDP?

Answer 8

It needs to be deflated - best through the Fisher Price Index

Question 9

What are the problems with index numbers?

Answer 9

Choice of index matters
Choice of base year matters
Quality changes not accounted for
Real value of new options not accounted for
Choice of bundle and weights is often subjective

Question 10

What’s PPP and why do we use it?

Answer 10

PPP is used to compare the relative value of currencies and the cost of living between countries. We use it because exchange rates don’t account for price levels.

Question 11

What are the two types of PPP?

Answer 11

Bilateral PPP: Used in many 2 country studies, possible to calculate for older and more numerous data, can be used for specific sectors.

Multilateral PPP: Used in many cross-country studies, does satisfy transitivity.

Question 12

What are the problems with the two types of PPP?

Answer 12

Bilateral - Indexes don’t satisfy transitivity
Multilateral: Only appropriate for aggregated sectors

Question 13

What’s growth accounting and how can it be formed?

Answer 13

Growth accounting is used to quantify the contributions of labour, capital and technology to economic growth and is formed by transforming a Cobb-Douglas production function.
Growth of output = residual growth + growth of K contribution + growth of L contribution.

Question 14

What are the problems with growth accounting?

Answer 14

We have to choose an aggregate production function but their can be issues with the functional form.
We need to constrain the components because national income shares may change rapidly.
We only capture the effect of growth, not the causes.
Growth levels are also important, not just rates.
Results can be time sensitive.

Question 15

What are the main points in theories of economic growth?

Answer 15

Proximate sources of growth
Deep determinants of growth
Key theoretical models

Question 16

What are the proximate sources of growth?

Answer 16

L and K accumulation
Human K accumulation
Technological change
(Immediate factors driving economic growth)

Question 17

What are the deep determinants of growth?

Answer 17

Institutions
Technology
(Long-term factors)

Question 18

What are the key theoretical models of growth?

Answer 18

Smithian growth (Proximate)
Solovian growth (Proximate)
Boserupian growth (Proximate)
Lewisonian growth (Proximate)
Schumpeterian growth (Deep determinant)

Question 19

What are the main points of institutions and economic growth?

Answer 19

Purpose: analyse the role of institutions in shaping long run growth.
Definition (North, 1990)
Types of institutions
Why institutions matter

Question 20

What’s North’s (1990) definition of institutions?

Answer 20

“The rules of a game in a society or, more formally, the humanly devised constraints that we share human interactions”.

Question 21

What are the types of institutions

Answer 21

Formal:
-Legal (civil law vs common law)
-Political (parliamentary vs presidential)
-Economic (capitalist vs communist)
-Education (private, public, state schools)
-Healthcare (public vs private)
Informal:
Culture - morals, norms, customs

Question 22

Why are institutions important for growth?

Answer 22

Influence on proximate sources of growth (K, L, A).
Impact on transaction costs and transformation costs.
Historical significance:
Property rights
Factor markets
Product markets
Govt
Commerce

Question 23

What are the main points in approaches to institutions?

Answer 23

Purpose: present different frameworks for understanding institutional evolution.
Efficiency approach
Accidentally approach
Cultural approach
Conflict approach

Question 24

What’s the efficiency approach?

Answer 24

People will choose the least costly way of transacting.
“Strong” version is Darwinism - inefficient institutions die out.
“Weak” version assumes a degree of path dependency - inefficient institutions can still persist but the best will still dominate.
However, there’s still no true definition of efficiency.
E.g, European merchant guilds (Grief, 2000)

Question 25

What was Grief's (2000) research on European Merchant guilds.

Answer 25

Merchant guild's in medieval Europe aimed to reduce transaction costs and protect members' interests. They helped solve problems of asymmetrical information and opportunism in long-distance trade. These were initially efficient but became rent-seeking and resistant to change.

Question 26

What's the accidental approach?

Answer 26

- Institutions aren’t selected but rather result from random or unpredictable influences. - Extreme “path dependency” – “efficiency” makes no adjustments. - Individual actors (organisations, rulers, etc) play a role. - Consistent with logic but random and exogenous. - E.g, AJR – accidental institutions determine long-term growth.

Question 27

What's the cultural approach?

Answer 27

- Based on the concept that societies, ethnic groups, or religions hold beliefs that determine institutional rules. - Institutions must be consistent with the beliefs and values of society. - “Exogenous” version – views beliefs as coming from outside institutions. - “Endogenous” version – views beliefs as being determined by institutions. - Provides few policy implications to deal with beliefs. - E.g, Protestant work ethic, Max Weber.

Question 28

What's the conflict approach?

Answer 28

- Based on the idea that institutions have distributional effects. - Institutions affect both growth and inequality. - Individuals have beliefs about how output is shared and what matters. - Different beliefs create conflicts which determines institutional development. - Efficiency is not central – individuals battle over institutional structure to capture their beliefs. - E.g, “whatever is, is right” (Ogilivie, 2007)