ECO342H1 Chapter Notes - Chapter 5: Growth Accounting, Price Mechanism, Diminishing Returns
Document Summary
February 5, 2019: dateswe look at explanations for rapid european growth from 1945 to 1970 and slower growth in following 25 years. Convergence: oldest theoretical underpinnings, price mechanism and mobility of factors of production in competitive markets should equalize prices, wages, profits, solow growth model. Reduction to barriers to trade, labor migration, capital flows should help equalize. Combines aggregate production function with diminishing returns with exogenous savings rate, depreciation, population growth, and efficiency growth to determine steady state growth where investment equals depreciation: economies move to optimal growth path. Explains golden age of europe as accelerated growth to catch-up to long-run per capita income growth rate of 2: increased international trade should drive prices of tradable commodities to same price. Movement from low productivity agriculture to high productivity manufacturing. Movement from manufacturing to lower productivity services. Structural change most favorable to growth 1950-73 and least favorable after.
