Lecture 4. Endogenous Economic Growth Theory (theory of endogenous economic growth)
Recommended reading : 【Macroeconomics】 Macroeconomics Table of Contents
1. Overview
2. R&D Model
3. Human Capital Model
1. Overview
⑴ Expansion of the concept of capital
⑵ The law of diminishing returns does not hold
⑶ Technological progress is explained endogenously
⑷ Emphasizes the role of government
2. R & D Model
⑴ Overview
① Definition : A model in which the rate of technological progress is determined endogenously by the research and development sector
② Proposed by Paul Romer in the mid-1980s
⑵ Basic assumptions
① At : the existing stock of knowledge in period t
② LA,t : research personnel working in the R&D sector in period t. In an aging society
③ kt : per-capita capital in period t
④ yt : per-capita production function in period t. Marginal product diminishes, but long-run growth is possible through At
⑤ nA : growth rate of research personnel
⑥ λ : productivity of research personnel
⑦ φ : spillover effect of existing knowledge
⑶ Deriving the steady state
⑷ Conclusion
① Knowledge accumulation by the R&D sector → higher rate of technological progress → higher long-run economic growth rate
② An aging society○ The scale of labor allocated to R&D shrinks
○ λ, i.e., the productivity of research personnel, declines
③ Policy implications
○ Protect R&D outcomes through institutional arrangements such as property rights and patent law
○ Provide tax incentives for R&D investment
○ Concentrate R&D investment in the research sector○ If R&D investment is concentrated in the development sector, the contribution of R&D investment to growth is not high
○ Reason 1. If you simply adopt what others have researched, the positive spillover effects of existing knowledge are not large
○ Reason 2. Investment using technology is not activated, so the growth effect of R&D spending is not large
3. Human Capital Model
⑴ Overview
① Since the per-capita production function is expressed in the form of AK, it is also called the AK model
② Constant marginal product : Because labor is not effectively a fixed input factor, increases in human capital make long-run economic growth possible○ Diminishing marginal product : As additional labor is投入ed, inefficiency is maximized, because each factor interferes with one another
○ Diminishing marginal product is fundamentally a phenomenon that arises because there exists a fixed input factor
○ The human-capital model brings about an unlimited increase in effective labor, so diminishing marginal product does not appear
⑵ Lucas model : Proposed by Robert Lucas
① Assumptions
○ Assume consumers do not save or borrow
○ For simplicity, assume the population growth rate is 0
② Step 1. The consumer’s human capital accumulation process
○ hts : amount of human capital held in period t
○ u : the share of available time (normalized to 1 each period) invested in labor
○ 1-u : the share of available time (normalized to 1 each period) invested in acquiring knowledge and skills
○ b : efficiency of the education sector (education system, policy, etc.)
○ (Note) In Korea, a lot of repetitive instruction occurs in the private education market, so b is not high
③ Step 2. Labor market equilibrium
Figure. 1. Determination of the equilibrium real wage
○ Labor supply curve : As effective labor supply uhts increases, the real wage rises (i.e., workers “ask for” a higher wage)
○ Labor demand curve : Since firms’ profit is always 0 regardless of the real wage, firms’ labor demand is invariant to the real wage
○ Equilibrium between the labor supply curve and the labor demand curve
○ (＃) Through equilibrium in the goods market, one can prove the equality between marginal productivity z and the real wage w
○ (※) In this case, firms’ profit becomes 0
○ (Note) Walras’ Law : If there is equilibrium in n-1 markets out of n, the remaining market is also in equilibrium (the reason (＃) and (※) hold simultaneously)
④ Deriving the steady state or balanced growth path
Figure. 2. Lucas model
⑤ Policy implications
○ Decrease u : Establish incentives for economic agents to invest more in human capital through measures such as lifelong education systems
○ Increase b : Improve the efficiency of education through reforms such as greater autonomy and substantive improvement in university education
⑶ Learning-by-doing model
① Learning-by-doing : Workers acquire human capital such as knowledge and skills directly through production activities
② Basic assumption : The quantity of goods produced by workers and the physical capital used by workers have a positive effect on human capital
③ Deriving the steady state or balanced growth path
Figure. 3. Learning-by-doing model
⑷ Model of simultaneous accumulation of physical capital and human capital
① Definition : Even if the marginal product of each diminishes, long-run economic growth is possible when physical capital and human capital are accumulated simultaneously
② Basic assumptions○ kt : physical capital
○ ht : human capital
○ s : investment share in physical capital relative to per-capita income
○ q : investment share in human capital relative to per-capita income
○ Assume the population growth rate is 0
③ Deriving the steady state or balanced growth path
Figure. 4. Simultaneous accumulation model of physical and human capital
④ Policy implications
○ To sustain growth, institutions and policies are needed to support the simultaneous accumulation of physical capital and human capital
Posted: 2020.10.04 17:24