Models of long run growth Flashcards
(17 cards)
What are the main categories of models of long-run growth?
Classical growth models (Malthusian and Smithian), Neoclassical growth models (Lewis and Solow), New Growth models (endogenous growth models, demography models, new institutional/geography economics)
What are the key features of the Malthusian model?
Unchanging attraction between the sexes
Population grows geometrically while food grows arithmetically
Land is in fixed supply – diminishing returns to labour
Any increase in income per capita will result in population growth
Population growth will be halted by positive and preventative checks
The model highlights the relationship between population growth and food supply.
What are the main reasons Malthus’ theory failed to predict growth?
- Assumption that shocks to income are eaten entirely by population growth
- Fails to foresee gains in productivity based on specialisation and labour accumulation
- Assumption that increases in income always lead to more children
- Failure to foresee changes in the market for children
- Assumption that shocks to income are inconsistent
- Failure to foresee sustained IRS and technological change
IRS refers to increasing returns to scale.
What is the central concept of the Smithian model?
Specialisation is central to growth
It emphasizes the importance of specialisation for gains from trade and larger scale production.
What characterizes the Lewis model?
- Economy has traditional (agriculture) and modern (industrial) sectors
- Traditional sector uses fixed land and unlimited labour to produce food
- Modern sector is characterised by market wages
- Labour can freely move to the modern sector
- Profits in the modern sector are reinvested
The model illustrates the transition from a traditional to a modern economy.
What are the key features of the Solow-Swan model?
- Individual factors of production face diminishing returns
- Temporary rapid growth can result from capital accumulation
- Eventually economies will reach a steady rate of growth
- Technological change is exogenous to the model
The model emphasizes the role of capital accumulation in growth.
Fill in the blank: In the Solow model, technological change is _______.
exogenous
This means that technological advancements are not influenced by the model’s economic variables.
What is the relationship between human and physical capital in terms of growth?
Investment in both human and physical capital can produce unconstrained growth
This highlights the importance of skilled and unskilled labour.
What are the stages of the demographic transition?
- High birth rate ≅ High death rate
- High birth rate > Medium death rate
- Moderate birth rate > Low death rate
- Low birth rate ≅ Low death rate
- Very low birth rate < low death rate
The demographic transition describes changes in birth and death rates as a country develops.
What is Becker’s Q-Q model?
First to model the market for children
It examines the relationship between household income and child quantity and quality.
What are the key features of the quantity-quality model?
- Parents derive utility from both child quantity and quality
- Low YED of child quantity and high YED of child quality
- Quality is a normal good, quantity is an inferior good
- A rise in household income increases quality but lowers quantity
YED refers to income elasticity of demand.
What is the Unified Growth Theory?
- Technological change is a function of population and education
- Education is a function of technological change
- Malthusian state has slow technical progress
- Higher levels of education generate higher technological change
This theory links Malthusian and post-Malthusian patterns.
What are deep determinants of growth according to New Institutional Economics?
- Security of property rights
- Social capital
- English language
- British legal system
- Religion
- Origin of the coloniser
- Geography
Each factor influences economic development and growth.
What does the Tropics Theory suggest about institutions?
Distance to the equator plays a key role in institutional development
It argues that European settlement patterns influenced the transfer of institutions.
True or False: Geography is not considered a deep determinant of growth.
False
Geography is significant according to the geographical view.
What does the Geography view argue regarding production efficiency?
Geography matters for efficiency in production
It contrasts with the Neoclassical model, which states there are no wedges.
What are the implications of the ‘resource curse’?
Prebisch-Singer hypothesis and Dutch Disease
These concepts explain how resource-rich countries can experience slower economic growth.
