Week 1 Reading Notes
1. Solow’s surprise: investment is not the key to growth (by Easterly) * Investment cannot be the source of growth in the long run * The belief of increasing buildings and machinery is the fundamental determinant of growth = capital fundamentalism * Investment increases machine per worker would lead to diminish return in long run * Technological progress is the key to growth in long run because it increases the productivity of the machine itself rather than machine per worker * Labor-saving technology may cause unemployment but worker as a whole is better off with more productive technology * Increase machine per worker could not be a source of growth in the long run but it could be a source of growth in the transition to long run * Return to the machinery (investment) must be very high (very few) due to scarceness initially * Evidence against Solow vision applied across countries was the failure of growth in many poor countries * Very poor countries and very rich countries have about the same income as one or two centuries ago * Alwyn Young of Chicago Business School found out that the gang of four (Korea, Singapore, Taiwan and Hong Kong)’s fast growing are mostly due to capital accumulation and only a small part was due to technological progress * Critics about Young’s approach:
a) Doesn’t take account for people respond to incentives b) Even if it’s true, doesn’t mean that it can be replicated elsewhere c) Rate of return didn’t behave the way where it was supposed to if capital accumulation is the main source of growth
2. Educated for What? (by Easterly)
* Lack of association between growth in schooling and growth in GDP * Some people found that the level of initial schooling is positively correlated with subsequent productivity growth but the relationship has to be temporary because it wouldn’t make much sense in the long run * Some economist found that the variations in...
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