Econ 5021 Macroeconomic Theory

Transcription

1 Econ 5021 Macroeconomic Theory Introduction Yin-Chi Wang The Chinese University of Hong Kong September 10, 2012 Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

2 Differences Across Countries 1 The average American s income is around 5 times bigger than the average Mexican s, around 14 times bigger than the average Indian s, and 35 times bigger than the average African s, all in PPP terms. 2 Life expectancy in rich countries is 77 years, 67 in middle-income countries, and 53 in poor countries. 3 Out of 6.4 billion people, 0.8 do not have access to enough food, 1 to safe drinking water, and 2.4 to sanitation. Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

3 Income Differences - by income decile Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

4 Years of schooling v.s. income Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

5 Life expectancy v.s. income Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

6 Differences across time World development since mid-19th century Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

7 Differences across time World development since 1000AD Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

8 The Post-WWII Era Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

9 A closer look at 5 representative economies since 1600 Note: Sustainable growth in real income per capita only started Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

10 The differences across countries is actually a late phenonmenon in the human history. What leads to the different development paths of countries? Why do some countries grow quickly while others stagnate? What explains growth over long periods of time? Is the growth sustainable? Is growth a temporary phase? Is the world inequality rising or shriking? Different views: depend on the measures and the periods researchers are looking at Acemoglu: slightly increasing Parente and Prescott (2002): world differences in living standards have delined over period Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

11 The Question Robert Lucas, 1988, p. 5 I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government could take that would lead the Indian economy to grow like Indonesia s or Egypt s? If so, what exactly? If not, what is it about the "nature of India" that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else. Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

12 Why Answering the Question is Diffi cult 1 Correlation versus causal relations 2 Bundling of factors 3 Proximate causes versus fundamental causes Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

13 Different Hypothesis 1 Physical capital accumulation: saving, investment 2 Labor force growth: labor participation 3 Human capital enhancement: education (years of schooling), learning by doing, job training 4 Population growth (a negative factor): fertility choice 5 Total factor productivity (TFP): R&D and technology invention, imitation, and adoption 6 Economic policy: taxes, education, health,... 7 Institutions: property rights, market versus planned economies 8 International Trade 9 Geography 10 Urbanization 11 Finance 12 Culture 13 Luck (a.k.a. multiple equilibria) 14 Exploitation of some countries by others Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

14 Physical capital Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

15 Capital Accumulation and Growth Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

16 Human Capital Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

17 TFP Growth Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

18 R&D Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

19 Trade Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

20 Institutions Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

21 Finance Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

22 Geography Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

23 Urbanization Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

24 Have rich countries suffered growth slowdown? Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

25 The concepts of convergence Unconditional convergence (β-convergence): the higher the initial per capita real GDP is, the lower the per capita real GDP growth will be ẏ i y i = θ i = β 0 + βy i (0) (DeLong (1988) and Barro (1991) reject unconditional convergence) Conditional convergence (conditional β-convergence): control other factors (e.g. OECD countries) ẏ i y i = θ i = β 0 + βy i (0) + γx (Barro (1991) and many others, cross-section) σ-convergence: the cross-country per capita real GDP is decreasing over time d dt [Var (y i )] < 0 Club convergence and twin-peak hypothesis (Quah 1996) Problems: Endogeneity problems Measurement errors Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

26 Why Formal Theory Matters? Formal theory (or economic model) is simplified versions of a more complex reality that can help: Organizing the stylized facts observed Explaining causal relationships Offering economic predictions Drawing policy implications We use different models to study different issues. Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

27 Macroeconomic Models Discrete v.s. continuous time models Endogenous v.s. exogenous variables The values of endogenous variables are determined in the model The values of exogenous variables are determined outside the model (the model takes the values as given) Closed v.s. open economy Short-run (bussiness cycle) v.s. long-run (e.g. growth) phenomenon Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

28 Developing Macroeconomic Models Questions: the purpose of the model What issue do you want to study? What question do you want to answer? Never write a model without empirics in your mind Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

29 Basic Technical Tools To build up formal theory of growth and development, basic technical tools include: Calculus Matrix algebra Constrained optimization methods (Lagrangian) Optimal control (Maximum Principle) Recursive methods and dynamic programming Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30

30 Your Task When studying a paper/model, you should ask The research goal Its assumptions The channels/mechanisms What leads to the result? Any possible extensions or improvements Yin-Chi Wang (CUHK) Econ 5021 Introduction September 10, / 30