Traditional Economy Flashcards
(22 cards)
In the year 1000 which countries are richest?
China and India are richer than USA and WE
In 1820 which countries are richest?
By 1820 WE and USA are twice as rich as China
In 2000 which countries are richest?
In 2000 USA is 8x richer than China and WE is 6x richer than China
Bubonic plague
A plague 1350-1650 which took the population in England from 4.8m to 1.9m and actually increased GDP per capita
Great divergence
From 1820 to 1900, the USA triple their wealth and the UK more than double theirs whilst many countries barely grow. This is mainly due to the industrial revolution
What happens in terms of relative changes in wealth in the period 1900-2000
Sustained economic growth continues in USA and WE as well as the start of sustainable growth in other countries. Still absolute divergence but not comparatively in terms of percentages.
What happened in relative changes of wealth in the period 1990-2008?
China has been growing quicker than USA and WE, china is only 5x and 3x poorer than USA and WE in 2008
Summarise the pre 18th century model of growth
Labour force, land and technology are combined to give GDP. Increasing labour force may have negative effects on GDP per capita though. Land is fixed so technology is the only option for growth
Summarise post 18th century model of growth
Labour force, human capital, physical capital and technology are combined to give GDP. Technology is still the only one that can grow exponentially
Fundamental causes of growth
Luck
Geography
Culture
Institutions
Describe the convergence of UK and poor countries from 1950 to 2008
- some Asian countries converged with UK
- there is no convergence of South American countries and UK
- africa and UK has actually diverged
Club convergence
A theory that suggests economies that are similar structurally will converged in the long run
Unconditional convergence
Simply suggests poor countries should grow quicker than rich ones so they converge
Economic structure
The share of the economy made up of agriculture, industry and services
The era of stagnation
130,000BC -18th century AD when there was no sustained economic growth and no increase in real wages
What does a basic traditional model tell us about GDP per capita
That each additional contribution of labour is lower the more labour there is and so adding an extra worker decreases GDP per capita
Exogenous variable
A constant we fee into the model
Endogenous variable
A variable that dormers on other variables in the model
What is the fundamental equation of growth for a traditional economy
g= g^A - Bn(y)
g=growth rate
g^A= rate of technological progress
B= parameter
n(y)= population growth as a function of GDP per capita
Predictions of Malthusian era
- Countries that have experienced g^A>0 for longer shouldn’t be richer
- Countries that have higher n(y) should be relatively poorer
- A sudden fall in L will increase y which in turn will cause L to increase again until y=y*
Why are there no diminishing returns to labour in the modern sector?
Because more capital can be made so labour doesn’t overcrowd it.
How is growth different in a modern sector?
In a modern economy growth is equal to the rate of technological growth
