three lectures on economic efficiency and growth thorvaldur gylfason ces ces ifo

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


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


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


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


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


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


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


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


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


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


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


cxbyag 0

)100

()100

1ln( 00

gTy

gTyy


cxbyag 0

)100

()100

1ln( 00

gTy

gTyy

)(100 00 cxbyaT

yy


cxbyag 0

)100

()100

1ln( 00

gTy

gTyy

)(100 00 cxbyaT

yy

xyy 0 100

Ta

100

Tc


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


GG

FF

AA BCC

OutpuOutput gaint gain



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


GG

FF

AA BCC




DD

HH EE


World price ratioWorld price ratio

Domestic, Domestic, distorted distorted price ratioprice ratio

OO

JJ KK

ImportsImports

ExportsExports

Welfare Welfare gaingain


GG

FF

AA BCC



DD

HHEE


OO

JJ

Welfare Welfare gaingain

MMNN

QQ

Transition takes time: From E to F via M, N, and Q


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



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


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°


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


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


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


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

three lectures on economic efficiency and growth thorvaldur gylfason ces ces ifo

Documents

economic efficiency

years060economic growth

pictures of growth

keynesexplicit growth

czech republic us

short runeconomic

growthlecture iiieducation

natural resourcesoutline