Long-Run Growth Policy

Reference: Macroeconomics in Modules

by Krugman and Wells

Indraprastha Institute of Information Technology, Delhi

August 24th, 2018

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Why Growth Rates Differ

Physical capital.
High rates of saving and investment spending.
Human capital.
Education.
Health.
Technological change
Engage in or encourage R&D: spending to create and im-
plement new technologies.
Countries adopt policies that are successful in some but
not all of three.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Why Growth Rates Differ
China’s success at adding human capital is one key to its
spectacular long-run growth.

**Source: Macroeconomics in Modules by Paul Krugman and Robin Wells

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Role of the Government in Promoting Growth

Government policies.
Protection of property rights.
Political stability and good governance.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Government Policies

Government subsidies to infrastructure.

Infrastructure: roads, power lines, ports, information net-
works, and other underpinnings for economic activity.
Government subsidies to education.
Government subsidies to R&D.
Maintaining a well-functioning financial system.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Protection of Property Rights

The rights of owners of valuable items to dispose of those

items as they choose.
Intellectual property rights, patents, copyrights.
Creates incentives to innovate without fear of theft.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Political Stability and Good Governance

Good laws and institutions that enforce those laws.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Success, Disappointment, and Failure

East Asian.
Latin America.
Africa.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Success, Disappointment, and Failure

East Asian.
Latin America.
Africa.

**Source: Macroeconomics in Modules by Paul Krugman and Robin Wells

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Are Economies Converging?

**Source: Macroeconomics in Modules by Paul Krugman and Robin Wells

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Are Economies Converging?

The growth rates of economically advanced countries have

converged, but not the growth rates of countries across the
world.
This has led economists to believe that the convergence hy-
pothesis fits the data only when factors that affect growth
(i.e. education, infrastructure, and favorable policies and
institutions) are held equal across countries.

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy

 Calculating Convergence

growth rate t
 
GDPt = GDPCurrent 1 + 100
To check how long the GDPs of two countries will become
equal, compute
 t  t
growth rate(C1) growth rate(C2)
GDPCurrent(C1) 1+ = GDPCurrent(C2) 1+
100 100

All other variables are known. Find t.

Only possible if?

Reference: Macroeconomics in Modules by Krugman and Wells Long-Run Growth Policy