Key Definitions Flashcards
(24 cards)
What is modern economic growth? And an example?
A sustained, self-reinforcing rise in real GDP per person driven by productivity improvements.
For example, Britain after 1830 raises real GDP and expats the Malthusian trap through the great divergence.
What does capital deepening refer to? And what does it require?
Initial increase in capital per worker, leading to productivity growth before diminishing returns set in.
Capital deepening requires institutions that protect innovation rents to investors keep investing.
What is Total Factor Productivity (TFP)?
The Solow residual; portion of output growth unexplained by measured labour and capital inputs. A.
How does a 1% rise in TFP affect GDP?
It lifts GDP by 1% with no extra inputs.
What is the difference between extensive and intensive growth? And why it is significant.
Extensive raises output by adding inputs; intensive raises output per input via TFP.
Explains why early catch-up eventually stalls unless economies switch to innovation-led growth.
What is de-industrialisation?
A persistent fall in manufacturing’s share of total employment or value added, offset by growth in services.
What does the Gini coefficient measure?
Income inequality, ranging from 0 (perfect equality) to 1 (one person owns all income).
Sweden has a low Gini Coefficient
What is the Kuznets curve?
An inverted-U hypothesis suggesting inequality rises in early industrialisation, then falls as education and welfare expand.
Because at the pre industrial wage there is low inequality because everyone is poor. Then during early industrialisation inequality rises as capital owners and urban skilled workers gain first. Then as the economy matures inequality falls once labour moves to high-wage sectors, education spreads and politics supports redistribution.
What is Piketty’s r > g condition? And why is it important?
When the after tax rate of return on capital (r) exceeds the economy wide growth rate (g), past wealth increases faster than new income is created widening the capital-income ratio and wealth inequality.
Because it explains why inequality can grow even in mature welfare states unless capital taxation/reinvestment lowers or raises g.
What is the price-specie-flow mechanism?
A mechanism under a gold standard where trade deficits lead to automatic adjustments in money supply and prices.
The assumption is that there is free gold flows, flexible prices/wages and no sterilisation.
It explains the pre 1914 external balance without activist macro-policy; failure of the mechanism in inter-war years (sterilisation) deepened the depression.
What are the ‘rules of the game’ for the gold standard?
Central banks pledge gold convertibility at a fixed par and raise interest rates and contract domestic credit when gold leaves, reverse when gold arrives. The necessary conditions were credible fiscal banking and labour markets willing to accept deflationary wage cuts.
What was the Bretton Woods system?
A monetary system from 1946-73 where the US dollar was fixed to gold, and other currencies were fixed to the dollar.
Key features:
- adjustable peg: parities could be changed under “fundamental disequilibrium”
- general agreements on tariffs reduced trade barriers and supported golden age boom.
What is a key example of extensive growth?
USSR in the 1950s with steel tonnage increasing by 10% per year.
What does the Engel curve illustrate? (De-industrialisation)
Consumption shifts to services as incomes rise.
What does a high Gini coefficient indicate?
Greater income inequality.
How did the Bretton Woods system support economic growth?
By balancing external stability with domestic autonomy.
What is a development state?
A government that targets specific sectors, allocates subsidised credit/tax breaks, and disciplines firms through export-performance tests; bureaucracy insulated from short-term politics.
What are the 3 driving forces of de-industrialisation?
- Engel curve, consumption shifts to services as incomes rise.
- Relative productivity, faster labour saving in industry than services.
- Globalisation, off shoring of labour intensive stages; Dutch-disease currency pressures (leads to decline of sector)
An example of De-industrialisation:
UK factory drops halved between 1970 to 2020 while industrial output climbed and GDP grew.
Growth impact hinges on whether displaced labour finds high-productivity service work or stagnates in informality.
What were the mechanisms of the development state and an example?
Learning subsidies such as temporary protection and cheap loans. And reciprocal control: support withdrawn if targets missed.
For example South Korea’s heavy and chemical industry plan raises shipbuilding world share from 1% up to 30% in two decades. 1973-1979
What is ISI? And give an example.
Strategy to replace imports with domestic production behind high tariffs, quotas and state credit.
What is a general purpose technology? And give an example.
An innovation with broad applicability, ongoing performance improvement, and that triggers complimentary inventions across many sectors.
For example, microprocessor, personal computer, internet and cloud.
How do GPT’s transfer through the economy?
Through an S-curve, slow pioneer phase, steep middle once complements are built and then plateau when found everywhere.
For example steam, electricity, ICT.
What is factor price equalisation?
Under perfect trade or factor mobility, relative prices of goods equalise, which in Heckscher Ohlin model makes wages and capital returns converge across countries.
It requires identical technology and no trade costs. It is a good analyser for if globalisation narrows or widens income gaps.
