Zoabi EG Introduction

Economic Growth
What have we learned?
Hosny Zoabi
Hosny Zoabi Economic Growth . . . 1 / 43

Introduction Comparative Development
Income
Income per Capita
per Capita across
across thein Globe
the Globe 2010 in 2010
00
00
00
00
0
00
00
00
50
00
00
00
+
0
30
50
00
00
10
-1
-2
-3
-4
0-
0-
0
1
0-
00
00
00
00
40
0-
0
10
30
0
50
10
15
20
30
Oded Galor Growth and Comparative Development Lecture I AEA 2014 2 / 61

Source: Galor(2011)
Argument:
Income levels vs. growth rates:
A F (k, h)
y = |{z}
| {z }
TFP F actors
What causes economic growth? Factors or TFP?
Does consumption promote economic growth?
Does saving promote economic growth?
Why do many politicians, journalists and economists call for

increasing consumption to achieve growth.
It is important to distinguish between growth in the economys

potential and growth by utilizing this potential
Argument:
A F (k, h)
y = |{z}
| {z }
TFP F actors


Argument:
A F (k, h)
y = |{z}
| {z }
TFP F actors


Argument:
A F (k, h)
y = |{z}
| {z }
TFP F actors


Argument:
A F (k, h)
y = |{z}
| {z }
TFP F actors


Argument:
A F (k, h)
y = |{z}
| {z }
TFP F actors


Argument
A F (k, h)
y = |{z}
Phases of Development The Modern Growth Regime
| {z } Phases of Development The Modern Growth Regime
TFP F actors
Sustained Economic Growth: 18702000 Regional Variation in Growth of Income per Capita: 19502000
50,000 50,000
GDP Per Capita (log scale)

5,000
5,000
500
500 1950 1960 1970 1980 1990 2000
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Western Europe Western Offshoots Africa
Western Europe Western Offshoots Asia Eastern Europe Latin America
Oded Galor Growth and Comparative Development Lecture I AEA 2014 Oded
37 Galor
/ 61 Growth and Comparative Development Lecture I AEA 2014

The Solow Model (1956)
Economic Growth
A F (k, h)
y = |{z}
| {z }
TFP F actors
We will discuss the

According to the
question
Solow model, of economic
growth
savings and and focus on
investment are the
Solow
engine Model
of growth.
Mankiw, Romer
and Weil (1992)

Economic Growth
A F (k, h)
y = |{z}
| {z }
TFP F actors
We will discuss the

According to the
question
growth
investment are the
Solow
engine Model
of growth.
Mankiw, Romer
and Weil (1992)

Economic Growth
A F (k, h)
y = |{z}
| {z }
TFP F actors
We will discuss the

According to the
question
growth
investment are the
Solow
engine Model
of growth.
Mankiw, Romer
and Weil (1992)

Convergence

Economic Growth Growth
Economic
Convergence
The figures show Samuelsons forecast that Soviet GNP would exceed that
of the United States by 2010-2015 (with a large confidence interval). He
won the Nobel prize in 1970 and is considered by many as one of the most
important economist in the 20th century.
government allowed high growth rates in th
USSR
Convergence
Average annual per

capita growth rates

Growth Accounting
FactorsGNP,Inputs, Productivity
Vs. Productivity USSR: and1928-1985
Population Growth: USSR:
1928- 1985
1928-85 1928-40 1940-50 1950-85
GNP 4.2 5.8 2.2 4.3
Combined Inputs 3.2 4.0 0.6 3.6
Hours 1.8 3.3 0.7 1.4
Employment 1.9 3.9 0.3 1.5
Capital 6.9 9.0 0.4 8.0
Land 0.8 1.6 -1.3 1.1
TFP 1.1 1.7 1.6 0.7
Population 1.3 2.1 -0.8 1.3
1950-60 1960-70 1970-75 1975-80 1980-85
GNP 5.7 5.2 3.7 2.6 2.0
Cobined Inputs 4.0 3.7 3.7 3.0 2.5
Hours 1.2 1.7 1.7 1.2 0.7
Employment 1.6 2.1 1.5 1.2 0.7
Capital 9.5 8.0 7.9 6.8 6.3
Land 3.3 0.2 1.0 -0.1 -0.1
TFP 1.6 1.5 0.0 -0.4 -0.5
Population 1.8 1.3 0.9 0.8 0.9
Hosny Zoabi (New Economic School) The Neoclassical Growth Model 12 / 125

Convergence
Durlauf and Johnson(1995): Reject the linear model in favor of multiple
regime model.


The Big Push (Paul Rosenstein-Rodan 1943)
The Big Push: The theory of the model emphasizes that

underdeveloped countries require large amounts of investments to
embark on the path of economic development from their present state
of backwardness.
Jeffrey Sachs of Columbia University argues that if public investment

and foreign aid are big enough, they will boost household incomes,
spurring savings and boosting local investment.
The evidence, however, in Africa at least, public investment and

foreign aid had produced no perceptible change in productivity,


of backwardness.




of backwardness.



Lack of Convergence across Nations: 1960-2000
Income Distribution in 1960
.25 .2
Density of Countries
.1 .15
.05
4 6 8 10 12
Log Income per Capita
1960

Lack of Convergence across Nations: 19601980

Lack of Convergence across Nations: 19602000
.25 .2
Density of Countries
.1 .15
.05
4 6 8 10 12
Log Income per Capita
1960 1980 2000

The World Distribution of Income
Lack of Convergence USSR-FSU: 1970-2000

Convergence { Sala-i-Martin 2006
Figure II.G: Distribution of Income in USSR-FSU
25,000
20,000
thousands of people
15,000
10,000
5,000
0
$100 $1,000 $10,000 $100,000
1970 1980 1989 1990 2000
Hosny Zoabi (New Economic School) The Neoclassical Growth Model 72 / 125

Persistent Inequality across Nations: 1960-2000
Persistent Inequality across Nations: 19602000
LUX
1 JPN NOR USA CHE
Ln GDP per Capita in 2000 (relative to the US)
ISL DNK
HKG IRL SWE
SGP AUT
FIN
FRA
BEL NLDGBR
ITA AUS
ISR
PRI BHS
ESP NZL
KOR PRT GRC
MLT
OMN SYC ARG
LBY
MEX TTOURY
HUN CHL VEN
.8
MYS CRI
PAN
GAB
BLZ BRA
BWA VCT ZAF
DOM
THA COLFJI SLV
PER
GTM DZA
EGY PRY
MAR ECU
SYR PHL
CHN GUY BOL
COG
HND
IDN LKA NIC
PNG CMR
CIV
ZWE
.6
PAK
LSO IND HTI
KEN
MRT SEN
BGDSDN
NGA
BEN ZMB
BFATGORWA GHA CAFMDG
NPL
TCD LBR
MWI SLE NER
BDI
ZAR
.4
.4 .6 .8 1
Ln GDP per Capita in 1960 (relative to the US)

Divergence across Regions: 18202010

Divergence across Regions: 1820-2010
30,000
25,000
(1990 Int'l $)
20,000
GDP Per Capita
15,000
10,000
5,000
0
1820 1850 1880 1910 1940 1970 2000
Western Europe Western Offshoots Eastern Europe

Latin America Asia Africa

Source: Galor(2011)
Source: Maddison
Hosny ZoabiProject (2013) Economic Growth . . . 17 / 43
Regional Income per Capita: 12010

Divergence across Regions: 1-2010
30,000
25,000
GDP Per Capita (1990 Int'l $)
20,000
15,000
10,000
5,000
0
0 500 1000 1500 2000


Source: Galor(2011)
Divergence
Evolution of across
InequalityRegions: 1-2010
across Regions: 12010
Income per Capita (1990 Intl $)
1 1000 1500 1820 2010
Western Oshoots 400 400 400 1,302 29,564

Western Europe 576 427 771 1,455 20,889
Latin America 400 400 416 628 6,767
Asia 456 470 568 591 6,307
Africa 472 425 414 486 2,034
Richest-Poorest Ratio 1.4 1.2 2 3 15
Western Oshoots: USA, Canada, Australia, New Zealand.
Source: Galor(2011)

Main Argument:
What explains growth and development?
What are the reasons that prohibited some countries to grow?
What account for the great divergence?
What account for the timing of the great divergence?

Main Argument:

Main Argument:

Main Argument:

Stages of development:
Introduction Comparative Development Introduction Comparative Development
Divergence across Regions: 18202010 Regional Income per Capita: 12010

Different regimes: Malthusian, Post Malthusian and Modern Growth
30,000 30,000
25,000 25,000
(1990 Int'l $)

20,000 20,000
GDP Per Capita
15,000 15,000
10,000 10,000
5,000 5,000
0 0
1820 1850 1880 1910 1940 1970 2000 0 500 1000 1500 2000
Western Europe Western Offshoots Eastern Europe Western Europe Western Offshoots Eastern Europe
Latin America Asia Africa Latin America Asia Africa
Oded Galor Growth and Comparative Development Lecture I AEA 2014Oded 3Galor
/ 61 Growth and Comparative Development Lecture I AEA 2014
Source: Galor(2011)
Source: Maddison Project (2013)

Malthusian Adjustments to the Black Death: England, 12501750
Malthusian regime - Black Death: England 1250-1750
Real Farm Wages (1775=100) 200 8.00
150 6.00
Population (millions)
100 4.00
50 2.00
0 0.00
1255 1295 1335 1375 1415 1455 1495 1535 1575 1615 1655 1695 1735
Real Wages Population
Source: Galor(2011)

Phases of Development The Post-Malthusian Regime
Take-o: Growth of Population & Income per Capita Western Oshoots

Post-Malthusian regime - Western Offshoots
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1913
Growth of income per capita Growth of population

Source: Galor(2011)
Take-o: Growth of Population & Income per Capita Western Europe

Post-Malthusian regime - Western Europe
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
1000-1500 1500-1820 1820-1913

Source: Galor(2011)
Take-o: Growth of Population & Income per Capita Latin America

Post-Malthusian regime - Latin America
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1913

Source: Galor(2011)
Take-o: Growth of Population & Income per Capita Africa

Post-Malthusian regime - Africa
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
1000-1500 1500-1820 1820-1913

Source: Galor(2011)
Take-o: Growth of Population & Income per Capita Asia

Post-Malthusian regime - Asia
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
1000-1500 1500-1820 1820-1973

Source: Galor(2011)
Sustained Economic Growth: 18702000

Modern Growth regime - Asia
50,000
5,000
500
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Western Europe Western Offshoots
Source: Galor(2011)

Regional Variation in Growth of Income per Capita: 19502000

50,000
5,000
500
1950 1960 1970 1980 1990 2000
Western Europe Western Offshoots Africa

Asia Eastern Europe Latin America
Source: Galor(2011)

Phases of Development The Demographic Transition
Early Fertility Decline Western Oshoots

Modern Growth regime - Western Offshoots
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950

Source: Galor(2011)
Early Fertility Decline Western Europe

Modern Growth regime - Western Europe
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950

Source: Galor(2011)
Early Fertility Decline Eastern Europe

Modern Growth regime - Eastern Europe
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950

Source: Galor(2011)
Late Fertility Decline Latin America

Modern Growth regime - Latin America
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950 1950-1973 1973-1998

Source: Galor(2011)
Late Fertility Decline Asia

3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950 1950-1973 1973-1998

Source: Galor(2011)
Late Fertility Decline Africa

Modern Growth regime - Africa
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1000-1500 1500-1820 1820-1870 1870-1913 1913-1950 1950-1973 1973-1998 1998-2010

Source: Galor(2011)
Modern Growth regime - Years elapsed since fertility
Years Elapsed since the Onset of the Fertility Decline

decline
0
15
.A
-3
-4
-6
-7
-9
90
0-
N
15
30
45
60
75

Source:Hosny
Galor(2011)
Zoabi Economic Growth . . . 36 / 43
Timing of the Demographic Transition and Current Income per Capita
decline
4 MYS
SYC
Log Income Per Capita in 2005
JPN USA
TTO CHE
2
KWT NOR ECU

BHR ISR ATG DNK VEN
AUT SUR
PAN GBRDEU
BEL COL
FRASWE
ITA
CRI
CAN
FIN NLD KEN
SAU KOR BRA ESP
LBY MEX PRT ARG
MUS
BLZ PER
BWALBN CHL THA
SLV
IDNGUY URY
JAM
RWA DOM LKA
GTMZAF CMR HUN
0
NAM
DZA PHL
AGO IRN PRY HNDDJI
JOR
NIC CIVTUN
BOL
EGY
SWZ TZA
ROM BGR
NGA CHN
ALB MAR
GIN SYRCOM CAF BEN GHA
SEN
VNM
TGO BDI
KHM SDN
AZE
ARM IND
BTN HTI GMB
MRT GEO
ZMB
LAO LBR LSO ETHBGD UZB ZWE
-2
MLI
MDGERI MNG MWI
NER
NPL KGZ
-4
-2 -1 0 1 2
Years Elapsed since the Demographic Transition
coef = 1.3462847, (robust) se = .10852591, t = 12.41
Conditional on absolute latitude.
Source: Galor(2011)

Evidence Patterns Across the Globe
Theories Correlations with Economic Outcomes
decline
Years Elapsed since the Demographic Transition
USA
4
SGP
ZAF BRB MYS
Average Years of Education in 2000
KOR
PAN
JPN PHL
2
ZMBISR
TTO
NOR CHE KEN
PER MUS
BGRECU CAN
GHA SWESWZBWA CUB
LKA
ZWE
GUY
DNK DEUCMRCRI THA ARG
EGY
JORCHL
VEN DZA
0
TGO KWT NLDAUT HUNIDN

RWA FIN MEXGBR
LSO COL
LBR BEL FRA
CAF BHR URY
BOL BEN ESPMWI TUN
PRY DOM SEN IND
BRA JAM
NIC ITA
GMB SLVSDN
SYR CHN
-2
HND
IRN NER
MLI GTM
PRT
HTI
-4
BGD
NPL
-6
-2 -1 0 1
Log Years Elapsed since the Demographic Transition
Oded Galor latitude

controlling for the absolute The Demographic Transition
and continental xed eects
Source: Galor(2011)
Deep Rooted Factors and Comparative Development
Geography (Bloom and Sachs 1998): Disease burden, topography,

Geography and Comparative Development Geography and Comparative Development
tude andtemperature, access to sea Effect

Income per Capita (landlocked), dayPhotosynthesis
of Potential light, photosynthesis
on Cotton Yield
oabi (New Economic School) Deep Rooted Factors 6 / 88

Hosny Zoabi (New Economic School) Deep Rooted Factors

Guns Germs and Steel: The Fates of Human Societies
Is a 1997 book by Jared Diamond, professor of geography and
physiology at UCLA
In 1998, it won the the Pulitzer Prize for general non-fiction and the
Aventis Prize for best science book.
The book attempts to explain why Eurasian civilization (including
North Africa) have survived and conquered others, while arguing
against the idea that Eurasian hegemony is due to any form of
Eurasian intellectual, moral or inherent genetic superiority.
Geographic, climatic and environmental characteristics which favored
early development of stable agricultural societies ultimately led to
immunity to diseases endemic in agricultural animals and the
development of powerful, organized states capable of dominating
others.
physiology at UCLA
others.
physiology at UCLA
others.
physiology at UCLA
others.
physiology at UCLA
others.
Phases of Development The Malthusian Epoch
The first and

Technology stepPopulation
towards civilization is the move from nomadic
Density in 1500
hunter-gatherer to rooted agrarian.
Years elapsed since the Neolithic Transition reects the technological level in 1500.
Source: Ashraf Conditional

and Galor on land (2011)
productivity, geographical factors, and continental xed eects.
Hosny Zoabi Economic
Source: Growth
Ashraf-Galor . . .2011)
(AER 41 / 43
Institutions (Acemoglu, Johnson and Robinson 2001, 2002)

Institutions: more secured property rights and less distortionary
policies.
What type of institution? Extractive institution or ones conductive to
growth.
Diversity (Ashraf and Galor 2013)
Cultural beliefs regarding the role of women in society (Alesina,

Giuliano and Nunn 2013) - Shifting cultivation vs. plough cultivation.
Time preferences (Galor and Ozak 2015)


policies.
growth.



policies.
growth.



policies.
growth.



policies.
growth.



policies.
growth.


Deep Rooted
Regional IncomeFactors and
per Capita: Comparative Development
12010
30,000
25,000
20,000
15,000
10,000
5,000
0
0 500 1000 1500 2000


Zoabi EG Introduction

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Economic Growth

What have we learned?

Hosny Zoabi Economic Growth . . . 1 / 43

Oded Galor Growth and Comparative Development Lecture I AEA 2014 2 / 61

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

What causes economic growth? Factors or TFP?

Does consumption promote economic growth?

Does saving promote economic growth?

Why do many politicians, journalists and economists call for

It is important to distinguish between growth in the economys

Income levels vs. growth rates:

GDP Per Capita (log scale)

Hosny Zoabi Economic Growth . . . 4 / 43

We will discuss the

Hosny Zoabi Economic Growth . . . 5 / 43

We will discuss the

Hosny Zoabi Economic Growth . . . 5 / 43

We will discuss the

Hosny Zoabi Economic Growth . . . 5 / 43

Hosny Zoabi Economic Growth . . . 6 / 43

Average annual per

Hosny Zoabi Economic Growth . . . 8 / 43

Hosny Zoabi Economic Growth . . . 9 / 43

Hosny Zoabi Economic Growth . . . 10 / 43

The Big Push: The theory of the model emphasizes that

Jeffrey Sachs of Columbia University argues that if public investment

The evidence, however, in Africa at least, public investment and

Hosny Zoabi Economic Growth . . . 11 / 43

The Big Push: The theory of the model emphasizes that

Jeffrey Sachs of Columbia University argues that if public investment

The evidence, however, in Africa at least, public investment and

Hosny Zoabi Economic Growth . . . 11 / 43

The Big Push: The theory of the model emphasizes that

Jeffrey Sachs of Columbia University argues that if public investment

The evidence, however, in Africa at least, public investment and

Hosny Zoabi Economic Growth . . . 11 / 43

Oded Galor Growth and Comparative Development Lecture I AEA 2014 6 / 61

Oded Galor Growth and Comparative Development Lecture I AEA 2014 7 / 61

1960 1980 2000