Upload
laurel-sybil-oconnor
View
249
Download
1
Tags:
Embed Size (px)
Citation preview
Three Lectures on Three Lectures on Economic Economic
Efficiency and Efficiency and GrowthGrowth
Thorvaldur GylfasonThorvaldur Gylfason
CESCES ifo
Outline and aimsOutline and aimsPresent a policy-oriented overview of Present a policy-oriented overview of
the theory and empirical evidence the theory and empirical evidence of economic growthof economic growth
Trace linkages between economic growth Trace linkages between economic growth and its main determinants: saving, and its main determinants: saving, investment, and economic efficiency investment, and economic efficiency
Exogenous vs. endogenous growthExogenous vs. endogenous growth Liberalization, stabilization, privatizationLiberalization, stabilization, privatization Education, institutions, natural Education, institutions, natural
resourcesresources
Outline and aimsOutline and aimsLecture ILecture I
Saving, efficiency, and economic Saving, efficiency, and economic growthgrowth
Lecture IILecture IIEconomic policy and growthEconomic policy and growth
Lecture IIILecture IIIEducation, natural resources, Education, natural resources,
institutions, and empirical institutions, and empirical evidenceevidence
IntroductionIntroductionGrowth theoryGrowth theory
As old as economics itselfAs old as economics itself
Smith, Marshall, Schumpeter, KeynesSmith, Marshall, Schumpeter, Keynes
Explicit growth theory started with Explicit growth theory started with Harrod and Domar in 1940sHarrod and Domar in 1940s
Why important?Why important?Unfashionable in 1960s and 1970sUnfashionable in 1960s and 1970s
Limits to growth, etc. Limits to growth, etc.
Growth and developmentGrowth and development
11
Growing apartGrowing apart
YearsYears
GN
P p
er
cap
ita
GN
P p
er
cap
ita
Country B: 2% a yearCountry B: 2% a year
Country A: 0.4% a yearCountry A: 0.4% a year
InvestmentInvestment EfficiencyEfficiency InstitutionsInstitutions PolicyPolicy
Threefold Threefold difference after difference after 60 years60 years
00 6060
Economic growth: Economic growth: The short run vs. the long The short run vs. the long runrun
TimeTime
Nati
on
al eco
nom
ic o
utp
ut
Nati
on
al eco
nom
ic o
utp
ut
Actual outputActual output
Potential outputPotential output
Business cyclesBusiness cyclesin the short runin the short run
Economic growthEconomic growthin the long runin the long run
DownswingDownswing
UpswingUpswing
Other comparisonsOther comparisons1)1) West-Germany vs. East-GermanyWest-Germany vs. East-Germany
2)2) Austria vs. Czech Republic Austria vs. Czech Republic
3)3) US vs. USSRUS vs. USSR
4)4) South Korea vs. North KoreaSouth Korea vs. North Korea
5)5) Taiwan vs. China Taiwan vs. China
6)6) Finland vs. EstoniaFinland vs. Estonia See my See my Pictures of GrowthPictures of Growth
www.hi.is/~gylfason/pictures2.htmwww.hi.is/~gylfason/pictures2.htm
China vs. Europe:China vs. Europe:
1:1 in 14001:1 in 1400
1:20 in 19891:20 in 1989
Further comparisonsFurther comparisons1)1) Thailand vs. BurmaThailand vs. Burma
2)2) Mauritius vs. MadagascarMauritius vs. Madagascar
3)3) Botswana vs. NigeriaBotswana vs. Nigeria
4)4) Tunisia vs. MoroccoTunisia vs. Morocco
5)5) Spain vs. ArgentinaSpain vs. Argentina
6)6) Dominican Republic vs. HaitiDominican Republic vs. Haiti
Singapore and Malaysia: GNP per capita 1962-2001
0
5000
10000
15000
20000
25000
30000
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
Malaysia
Singapore
Current US$,Atlas method
6.1%6.1%
4.1%4.1%
(1.02)(1.02)4040 = 2.2 = 2.2
Botswana and Nigeria: GNP per capita 1962-2001
0
500
1000
1500
2000
2500
3000
3500
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
Botswana
Nigeria
Current US$,Atlas method
Spain and Argentina : GNP per capita 1962-2001
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
Argentina
Spain
Current US$,Atlas method
Mauritius and Madagascar: GNP per capita 1962-2001
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
Mauritius
Madagascar
Current US$,Atlas method
Ireland and Greece: GNP per capita 1962-2001
0
5000
10000
15000
20000
25000
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
Ireland
Greece
Current US$,Atlas method
Basic growth theoryBasic growth theoryA.A. Harrod-Domar modelHarrod-Domar model
B.B. Solow modelSolow model
C.C. Endogenous growth modelEndogenous growth model
Let’s do the algebraLet’s do the algebra
Harrod-Domar modelHarrod-Domar model
sYS vYK
IS KKIsYS
vYYvsY YvYvs
v
s
Y
Y
v
sg
Two assumptionsTwo assumptions
Implications for growthImplications for growth 03.004.03
21.0g
grossgross netnet replacementreplacement
Fixed saving rateFixed saving rate
Fixed capital/output ratioFixed capital/output ratio
Harrod-Domar modelHarrod-Domar model
v
sg
Three propositions about growthThree propositions about growth
0ds
dg
0dv
dg
0ddg
Saving increases growthSaving increases growth
Efficiency increases growthEfficiency increases growth
Depreciation reduces growthDepreciation reduces growth
v = K/Yv = K/Y
1/v = Y/K1/v = Y/K
Solow modelSolow modelFour assumptionsFour assumptions
Full employmentFull employment
aaKALY 1)(
nteLL 0
FYY
KKIsYS
Constant growth of labor forceConstant growth of labor force
Constant returns to scaleConstant returns to scale
gaanK
Ysaang )1()1(
Saving equals investmentSaving equals investment
ng
.constA
Output growth equals labor force growthOutput growth equals labor force growth
Solow modelSolow modelEndogenous output/capital ratioEndogenous output/capital ratio
k
ysaang )1(
ExogenousExogenousEndogenousEndogenous
ExogenousExogenous
aaKALY 1)( aAky 1aAk
k
y
Need to determine k and hence y/kNeed to determine k and hence y/k
Solow modelSolow modelDynamic stability of output/capital ratioDynamic stability of output/capital ratio
L
Kk
LKk
nsAknk
ysLKk a
0)1( aasAkdk
kd Stable equilibriumStable equilibrium
s
n
k
yk
0
Solow modelSolow modelDynamic stability of output/capital ratioDynamic stability of output/capital ratio
0)1( aasAkdk
kd Stable equilibriumStable equilibrium
k
k
EE
Solow modelSolow modelTwo equations in two unknowns, y and kTwo equations in two unknowns, y and k
Long-run equilibriumLong-run equilibrium
aAky 1
ks
ny
a
n
sAk
1
aa
a
An
sy
11
Ou
tpu
t p
er
head
Capital per worker
Output/capital ratio
aAky 1
ks
ny
Solow modelSolow model
EE
Comparative statics:Comparative statics:
E moves in response to E moves in response to
changes in s, A, n, and changes in s, A, n, and
Solow modelSolow modelFour propositions about long-run growthFour propositions about long-run growth
aa
a
An
sy
11
0ds
dy
0dA
dy
0dn
dy
0ddy
Increased saving increases income per capitaIncreased saving increases income per capita
Increased efficiency increases income per capitaIncreased efficiency increases income per capita
Increased population growth reduces income per capitaIncreased population growth reduces income per capita
Increased depreciation reduces income per capitaIncreased depreciation reduces income per capita
Closed-form solution Closed-form solution to Solow modelto Solow model
aaKALY 1)(
nteLL 0qteAA 0tqneLAAL )(
00
ALYy /ˆ
ALKk /ˆ
KsYKIK kys
AL
K ˆˆ
aky 1ˆˆ
Labor-augmenting Labor-augmenting
technological progresstechnological progress
Closed-form solution Closed-form solution to Solow modelto Solow model
kqknkysALLA
K
AL
K
AL
Kk ˆˆˆˆ)(ˆ
22
qnksqnk
ys
k
kg a
k
ˆ
ˆˆ
ˆ
ˆˆ
skqnk
k a
ˆ
ˆ
ˆ
skqnkk aa ˆˆˆ 1
a
qn
sk
1
ˆ
Closed-form solution Closed-form solution to Solow modelto Solow model
akv ˆ
k
ka
v
vˆ
ˆv
k
k
a
v
ˆ
ˆ
svqnva
kv a
1ˆ
tqnaaa eqn
sk
qn
skv
0̂ˆ
a(a(+n+q) is the speed of convergence+n+q) is the speed of convergence
Closed-form solution Closed-form solution to Solow modelto Solow model
a
t qn
sk
1
ˆlim
a
a
t qn
sy
1
ˆlim
a
a
qta
a
tt qn
seA
qn
sA
L
Yy
1
0
1
limlim
timetime
k̂
0̂k
Solow model: Solow model: ConvergenceConvergence
175.004.0 te t
408.004.0 te t
kqnak ˆˆ
kkkk ˆ04.006.07.0ˆ04.001.001.07.0ˆ
Takes 17 years to close half the gapTakes 17 years to close half the gap
Takes 40 years to close 80% of the gapTakes 40 years to close 80% of the gap
Solow model: Solow model: ConvergenceConvergence
Ou
tpu
t p
er
head
Capital per worker
aAky 1
ks
ny
Rich country’s Rich country’s initial income per headinitial income per head
Poor country’s Poor country’s initial income per headinitial income per head
Poor country must grow Poor country must grow
faster if it is to catch upfaster if it is to catch up
An Increase in the An Increase in the Saving RateSaving Rate
Ou
tpu
t p
er
head
Ou
tpu
t p
er
head
Capital per workerCapital per worker
EF
C’C
P
Ou
tpu
t p
er
head
Capital per workerCapital per worker
E
F
P
P’C
An Increase in Static An Increase in Static EfficiencyEfficiency
Ou
tpu
t p
er
head
Ou
tpu
t p
er
head
Capital per workerCapital per worker
FE
CC’
P
An Increase in An Increase in Population Growth or Population Growth or DepreciationDepreciation
Ou
tpu
t p
er
head
Ou
tpu
t p
er
head
Capital per workerCapital per worker
F
E
C
C’
P
P’
An Increase in Dynamic An Increase in Dynamic Efficiency (Technical Efficiency (Technical Progress)Progress)
Solow model: Solow model: ConclusionConclusion
Three main points to noteThree main points to noteLong-run growth is exogenous: Long-run growth is exogenous: g = n + qg = n + q No role for economic forces, policy or No role for economic forces, policy or
institutions, just technologyinstitutions, just technology But education is good for growthBut education is good for growth
Model implies convergenceModel implies convergence Poor countries grow more rapidly than richPoor countries grow more rapidly than rich
The medium term can be quite longThe medium term can be quite long Growth is endogenous for a long whileGrowth is endogenous for a long while
Solow model with Solow model with educationeducation
aaKAHY 1)(
btLeH
bqng
H = skilled laborH = skilled labor
L = raw labor, b = years of schoolingL = raw labor, b = years of schooling
AH grows at n + q + bAH grows at n + q + b
Education stimulates long-run growthEducation stimulates long-run growth
0ds
dg
Endogenous growthEndogenous growthaaKALY 1
aLKEA )/(
qng
E = efficiencyE = efficiency
EKY
sEg
E = 1/v in Harrod-DomarE = 1/v in Harrod-Domar
Harrod-Domar, again, without the drawbacksHarrod-Domar, again, without the drawbacks
Two equations in two unknowns, g and qTwo equations in two unknowns, g and q
Endogenous growthEndogenous growth
Technological progress, q
Eco
nom
ic g
row
th,
g
45°
Population growth
O
AC
Saving ratetimes efficiencyminus depreciation
B
sEg
qng
0ds
dg0
dE
dg
Let’s take four examplesLet’s take four examples
A tax on education A tax on education and endogenous and endogenous growthgrowth
G = government spending on educationG = government spending on education
G is financed by tax on capitalG is financed by tax on capital
Constant returns to capitalConstant returns to capital
AGKY tKG
EKKAtY
AtE
Atsg A tax to finance education A tax to finance education
is good for growthis good for growth
11
Inflation, money, Inflation, money, and endogenous and endogenous growthgrowth
Output is made by financial and real capitalOutput is made by financial and real capital
KP
MY
KPK
MY
PK
ME
1
1
PK
M
1
1sg
Inflation reduces the use of financial capitalInflation reduces the use of financial capital
22
Inflation impedes growthInflation impedes growth
Education and Education and endogenous growth, endogenous growth, againagain
R&D model (Romer)R&D model (Romer)
LbAY )1( BbLAA
BbLA
A
nBbLg
b = fraction of labor force engaged in R&Db = fraction of labor force engaged in R&D
bL = number of workers engaged in R&DbL = number of workers engaged in R&D
A = stock of existing knowledgeA = stock of existing knowledge
Growth depends on R&D Growth depends on R&D
0ds
dg
33
0db
dg
Education and Education and endogenous growth, endogenous growth, once moreonce more
Less education Less education
means less means less
growthgrowth
Human capital model (Lucas)Human capital model (Lucas)aaKALY 1
acAaaKcLY 1)(
hc
c
1
c = human capitalc = human capital
h = fraction of time spent on workh = fraction of time spent on work
hng 1
0ds
dg
Let’s look at some evidence, but first …Let’s look at some evidence, but first …
44
How growth becomes How growth becomes endogenousendogenous
Solow model: when s rises, E = Y/K falls Solow model: when s rises, E = Y/K falls due to decreasing returns to capital, so g due to decreasing returns to capital, so g stays putstays put
Endogenous growth: when s rises, E Endogenous growth: when s rises, E stays put due to constant returns to stays put due to constant returns to capital, so g risescapital, so g rises
aaKALY 1)( aAky 1aAk
k
y
EKY )(kfEk
y
K
Y
Empirical growth Empirical growth researchresearch
1)1) Cross-country regressionsCross-country regressions Large samples, beginning in 1960 or Large samples, beginning in 1960 or
19701970
2)2) Cross sections vs. panelsCross sections vs. panels
3)3) Averages vs. initial values of Averages vs. initial values of independent variablesindependent variables
Cost of simultaneity bias vs. cost of Cost of simultaneity bias vs. cost of discarding available datadiscarding available data
4)4) Recursive modeling vs. instrumentsRecursive modeling vs. instruments
5)5) Levels of income vs. rates of growthLevels of income vs. rates of growth
Recursive modelingRecursive modelingGrowth regressionGrowth regression
g = g = aa00 – – aa11yy00 + + aa22x + x + aa33zz (1)(1)
where x is exogenous and z is endogenouswhere x is exogenous and z is endogenous
z = z = bb00 + + bb11yy00 – – bb22xx (2)(2)
where z is, say, education and x is natural where z is, say, education and x is natural resource relianceresource reliance
Eq. (2) makes z exogenous, so (1) and (2) Eq. (2) makes z exogenous, so (1) and (2) can be estimated by OLScan be estimated by OLS
TSLS calls for instruments that help explain z TSLS calls for instruments that help explain z without being correlated with g: Not easywithout being correlated with g: Not easy
Levels of income vs. Levels of income vs. rates of growthrates of growth
cxbyag 0
Levels of income vs. Levels of income vs. rates of growthrates of growth
cxbyag 0
)100
()100
1ln( 00
gTy
gTyy
Levels of income vs. Levels of income vs. rates of growthrates of growth
cxbyag 0
)100
()100
1ln( 00
gTy
gTyy
)(100 00 cxbyaT
yy
Levels of income vs. Levels of income vs. rates of growthrates of growth
cxbyag 0
)100
()100
1ln( 00
gTy
gTyy
)(100 00 cxbyaT
yy
xyy 0 100
Ta
100
Tc
Levels of income vs. Levels of income vs. rates of growthrates of growth
cxbyag 0
)100
()100
1ln( 00
gTy
gTyy
)(100 00 cxbyaT
yy
xyy 0 100
Ta
100
Tc
1001
Tb
Conditional Conditional
convergence requires convergence requires
b > 0 b > 0 < 1< 1
One-to-one One-to-one
correspondence correspondence
between parametersbetween parameters
Absolute Absolute convergence: convergence: Growth ratesGrowth rates
y = -0,864x + 8,3057R2 = 0,1821
-10
-5
0
5
10
15
4 6 8 10 12
Log of GNP per capita 1960
Gro
wth
of
GD
P p
er c
apit
a 19
60-2
000
(%)
b = 0.864b = 0.864
165 countries
EquatorialGuinea
Absolute Absolute convergence: Levels convergence: Levels of incomeof income
y = 0,6575x + 3,2827R2 = 0,4523
4
6
8
10
12
4 5 6 7 8 9 10 11 12
Log of GNP per capita 1960
Lo
g o
f G
NP
per
cap
ita
2000
4
45º
= 0.658= 0.658
= 1 – = 1 – 0.40.40.8640.864
Conditional Conditional
convergence is convergence is
stronger, as we will seestronger, as we will see165 countries
EquatorialGuinea
From efficiency to growthFrom efficiency to growthBasic resultBasic result
If it – anything! – increases economic If it – anything! – increases economic efficiency, it is also good for growthefficiency, it is also good for growth
Follows from Harrod-Domar model as well Follows from Harrod-Domar model as well as from endogenous-growth theory and as from endogenous-growth theory and also, as a proposition about the also, as a proposition about the medium run, from the Solow modelmedium run, from the Solow model
In practice, Solow model and endogenous In practice, Solow model and endogenous growth are hard to distinguishgrowth are hard to distinguish
So, let’s look more closely at efficiency So, let’s look more closely at efficiency
Liberalization Liberalization Increases Economic Increases Economic EfficiencyEfficiency
GG
EE
CC
Traditional Traditional outputoutput
Modern outputModern output
HHDD Domestic, Domestic,
distorted distorted price ratioprice ratio
OO
Liberalization Liberalization Increases Economic Increases Economic EfficiencyEfficiency
GG
FF
AA BCC
OutpuOutput gaint gain
Traditional Traditional outputoutput
Modern outputModern output
DD
HH EE
Price Price distortiodistortionn
World price ratioWorld price ratio
Domestic, Domestic, distorted distorted price ratioprice ratio
If output gain = E and price distortion = c, then E = mc2
OC = modern outputCA = traditional outputOA = total output
OO
Liberalization Liberalization Increases Economic Increases Economic EfficiencyEfficiency
GG
FF
AA BCC
OutpuOutput gaint gain
Traditional Traditional outputoutput
Modern outputModern output
DD
HH EE
Price Price distortiodistortionn
World price ratioWorld price ratio
Domestic, Domestic, distorted distorted price ratioprice ratio
OO
JJ KK
ImportsImports
ExportsExports
Welfare Welfare gaingain
Liberalization Liberalization Increases Economic Increases Economic EfficiencyEfficiency
GG
FF
AA BCC
Traditional Traditional outputoutput
Modern outputModern output
DD
HHEE
Price Price distortiodistortionn
OO
JJ
Welfare Welfare gaingain
MMNN
Transition takes time: From E to F via M, N, and Q
Liberalization Liberalization Increases Economic Increases Economic EfficiencyEfficiency
DD
GG
FF
EE
AA
BB
Price Price distortiondistortion
JJ
OO
HH
World price World price ratioratio
CC
AB = static gainAB = static gainBC = dynamic gainBC = dynamic gainAC = AB + BC = total gainAC = AB + BC = total gain
ProductiviProductivity gainty gain
KK
WelfareWelfaregaingain
Traditional Traditional outputoutput
Modern outputModern output
Stabilization Stabilization Increases Economic Increases Economic EfficiencyEfficiency
Financial capitalFinancial capital
Real Real capitalcapital
Undistorted Undistorted price ratioprice ratio
GG
FF
EE
AA
InflationInflationdistortiondistortion
45°
Output afterOutput after
Output beforeOutput before
Distorted Distorted price ratioprice ratio
CC
DD
HH
OO BB
OutpuOutput gaint gain
If output gain = E and inflation distortion = c, then, again, E = mc2
Privatization Privatization Increases Economic Increases Economic EfficiencyEfficiency
Private outputPrivate output
Public Public outputoutput
Undistorted Undistorted price ratioprice ratio
D
G
Distorted Distorted price ratioprice ratio
F
E
A BN
Price andPrice andqualityqualitydistortiondistortion
H
O
J
K
45°
OutpuOutput gaint gain
From efficiency to growth: From efficiency to growth: Same story time and again Same story time and again
Free tradeFree trade is good for growth is good for growth – Reduces the inefficiency that results from Reduces the inefficiency that results from
restrictions on trade restrictions on trade
Price stabilityPrice stability is good for growth is good for growth – Reduces inefficiency resulting from inflationReduces inefficiency resulting from inflation
PrivatizationPrivatization is good for growth is good for growth – Reduces inefficiency resulting from SOEsReduces inefficiency resulting from SOEs
EducationEducation is good for growth is good for growth – Reduces the inefficiency that results from Reduces the inefficiency that results from
inadequate educationinadequate education
Investment and Investment and growth, 1965-1998growth, 1965-1998
-8
-6
-4
-2
0
2
4
6
0 5 10 15 20 25 30 35
Gross domestic investment 1965-1998 (% of GDP)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-1
99
8, a
dju
ste
d f
or
init
ial
inc
om
e (
% p
er
yea
r)
r = 0.65
Jordan
Botswana
Nicaragua
85 countries85 countries
An increase in investment by 4% of GDP is associated with an increase in per capita growth by 1% per year
4%1%
Thailand
r = rank correlation
Education and Education and growth, 1965-1998growth, 1965-1998
87 countries87 countries-8
-6
-4
-2
0
2
4
6
0 50 100
Secondary-school enrolment 1980-97 (%)
Per
cap
ita
eco
no
mic
gro
wth
196
5-98
, ad
just
ed f
or
init
ial i
nco
me
(% p
er y
ear)
r = 0.72
Diminishing returns: The additional benefit from education becomes smaller as enrolment increases
Ghana
ThailandFinland
Japan
A 25 point increase in secondary-school enrolment goes along with an increase in per capita growth by 1% per year
Natural resources and Natural resources and growth, 1965-1998growth, 1965-1998
-8
-6
-4
-2
0
2
4
6
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-9
8, a
dju
ste
d f
or
init
ial
inc
om
e (
%)
An increase in the natural capital share by 8% goes along with a decrease in per capita growth by 1% per year
r = -0.64
Cameroon
Mauritius
85 countries85 countries
Madagascar
Mali
Democracy and Democracy and growth, 1965-1998growth, 1965-1998
144 countries144 countries-8
-6
-4
-2
0
2
4
6
8
-10 -5 0 5 10
Index of democracy 1960-2000
Gro
wth
of
GD
P p
er c
apit
a 19
60-2
000,
ad
just
ed
for
init
ial i
nco
me
(% p
er y
ear)
r = 0.48
EquatorialGuinea
Malaysia
Singapore
Democracy Democracy
and growth and growth
go togethergo together
Saudi-Arabia
Korea
Botswana
Cyprus
China
Now, let’s Now, let’s
run some run some
regressionsregressions
Growth regressionsGrowth regressionsBased on World Bank dataBased on World Bank data
World Development Indicators, published World Development Indicators, published each year on CDeach year on CD
Wide coverage: 208 countries, 42 yearsWide coverage: 208 countries, 42 years
Could also use Penn data (compiled by Could also use Penn data (compiled by Summers and Heston), but they cover Summers and Heston), but they cover fewer countriesfewer countries
Here, we report cross-sectional evidence, Here, we report cross-sectional evidence, representing each country by a single representing each country by a single observation for each variableobservation for each variable
POLITY2 describes POLITY2 describes
democracy on a scale from democracy on a scale from
-10 to 10 -10 to 10
Keep an eye on the number of observationsKeep an eye on the number of observations
An increase in democracy by 15 points (e.g., An increase in democracy by 15 points (e.g.,
from –7 to 8) increases growth by 1 from –7 to 8) increases growth by 1
percentage pointpercentage point
INITIAL is the log of per capita INITIAL is the log of per capita
GNP in 1960, so the coefficient GNP in 1960, so the coefficient
describes the speed of describes the speed of
convergence convergence
PRIMGDP is the share of PRIMGDP is the share of
primary production in GDP primary production in GDP
An increase in the share of primary production An increase in the share of primary production
in GDP by 14% increases growth by 1 in GDP by 14% increases growth by 1
percentage pointpercentage point
INVEST is the ratio of INVEST is the ratio of
investment to GDP investment to GDP
An increase in investment by 9% of An increase in investment by 9% of
GDP increases growth by 1 GDP increases growth by 1
percentage pointpercentage point
LOGENROL is the log of LOGENROL is the log of
secondary-school enrolment secondary-school enrolment
(net)(net)
An increase in secondary-school enrolment by 100% An increase in secondary-school enrolment by 100%
(e.g., from 40% to 80%) increases growth by nearly 1 (e.g., from 40% to 80%) increases growth by nearly 1
percentage pointpercentage point
DISTORTDISTORT = = /(1+/(1+ ) )
A decrease in inflation from 50% to zero A decrease in inflation from 50% to zero
increases growth by nearly 1 percentage pointincreases growth by nearly 1 percentage point
DUMMYAFR is a dummy for DUMMYAFR is a dummy for
sub-Saharan Africasub-Saharan Africa
Dependent variable is now the Dependent variable is now the
level of per capita GNP: same level of per capita GNP: same
storystoryConditional Conditional
convergencconvergenc
e, as beforee, as before
BIRTHS is the number of births BIRTHS is the number of births
attended by skilled medical staff attended by skilled medical staff
(%)(%)
BIRTHS BIRTHS makes makes African African dummy dummy redundantredundant
Dependent variable: per Dependent variable: per
capita growth 1960-2000, Rcapita growth 1960-2000, R22
= 0.68= 0.68
Democracy equationDemocracy equation
Education equationEducation equation
Health equationHealth equation
Investment equationInvestment equation
Growth equationGrowth equation
Total effect of democracy Total effect of democracy
on growth is on growth is 0.051 + 0.051 +
0.013 + 0.019 + 0.020 = 0.013 + 0.019 + 0.020 =
0.1030.103
If Panama became like If Panama became like
Costa Rica, growth would Costa Rica, growth would
rise by 1%rise by 1%
Grand finaleGrand finale
Effects of Effects of
democracydemocracy
Dependent variable: per Dependent variable: per
capita growth 1960-2000, Rcapita growth 1960-2000, R22
= 0.68= 0.68
Democracy equationDemocracy equation
Education equationEducation equation
Health equationHealth equation
Investment equationInvestment equation
Growth equationGrowth equation
Total effect of primary Total effect of primary
share on growth is share on growth is 0.026 + 0.026 +
0.014 + 0.010 + 0.012 = 0.014 + 0.010 + 0.012 =
0.0620.062
Effect of primary production Effect of primary production
on growthon growth
Grand finaleGrand finale
Effects of Effects of
natural natural
resourcesresources
ConclusionConclusion
The EndThe EndSaving and efficiency Saving and efficiency are good for growthare good for growth
Efficiency gains take Efficiency gains take many different forms many different forms
Liberalization, stabilization, Liberalization, stabilization, privatizationprivatization
Conversion of inputs into output is Conversion of inputs into output is not solely a matter of technology, but not solely a matter of technology, but also efficiency, so also efficiency, so economic policy economic policy mattersmatters
Classroom discussionClassroom discussion