What are the 3 types of capital?
- Private capital stock
- Public infrastructure (e.g. schools, hospitals, etc)
- Human capital
What are the 2 viewpoints on economic investment?
- Market-led
- Industrial policy
Describe the market-led economic investment viewpoint
- equalise tax treatment across all capital types
- let market allocate investment to where MP highest
MP = marginal product
Describe the industrial policy economic investment viewpoint
- Govt actively encourages investment in specific sectors
- some investments have positive externalities
- whereas private investors ignore positive externalities
Describe the problems with industrial policy
- govt may lack ability to ‘pick winners’
- Politics (e.g. campaign contributions) may lead to preferential treatment for certain industries
Why may the govt lack the ability to ‘pick winners’?
- winners - industries with highest returns/biggest externalities
- Can pick in SR
- Can’t in LR
What are some alternative govt policies to industrial policy?
- legal institutions to protect property rights
- Supporting capital markets
- Corruption-free govt that enforces contracts
- Patent laws, R&D tax incentives, funding for basic research
How do capital markets help economic growth?
Direct finance towards best projects
Does an open economy benefit developed or developing country’s growth more? (1970-89)
developing
Does a closed economy benefit developed or developing country’s growth more? (1970-89)
No difference
Provide some evidence for free trade promoting growth
a 2% increase in trade/GDP causes GDP/capita to increase by 1%
What do Frankel and Romer suggest affects the level of trade?
- geographic variation
- landlocked countries/those far from trading partners trade less
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(1.1) Macro foundations18
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(1.2) GDP19
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(1.3) Price level18
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(2.1) Economic Growth15
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(2.2) Production Function31
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(2.3) Allocating Resources18
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(3.1) Development Accounting4
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(3.2) Solow Growth Model16
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(3.3) Transition Dynamics (Solow Model)32
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(3.4) Comparative statics in Solow model19
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(4.1) Ideas16
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(4.2) Setting up the Romer Model10
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(4.3) Solving the Romer Model10
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(4.4) Comparative statics in Romer Model10
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(4.5) Combined Solow-Romer model22
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(4.6) Transition dynamics (combined model)6
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(5.1) Growth Accounting18
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(5.2) TFP differences32
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(5.3) Policy Issues12
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(5.4) Demographic transition16
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(5.5) Structural transformation9
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(6.1) Labour Market basics16
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(6.2) Labour market dynamics36
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(6.3) Model of unemployment9
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(6.4) Global Labour Markets4
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(6.5) Labour Market policies and institutions38
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(7.1) Two-Period Model26
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(7.2) Comparative statics in consumption28
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(7.3) Government and RE26
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(8.1) Credit market imperfections3
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(8.2) Borrowing-lending rate wedge21
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(8.3) Rate wedge and RE5
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(8.4) Collateral constraints28
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(8.5) Evidence on consumption12
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(9.1) Government budget constraint17
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(9.2) Debt:GDP ratio17
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(9.3) Consequences of govt debt20
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(10.1) Fiscal challenges in LR30
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PS re-do6
