http://individual.utoronto.ca/zheli/sa1.pdf

On the mechanics of economic development

This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and

/pdf/a-contribution-to-the-empirics-of-economic-growth-27cl5gkqam.pdf

A Contribution to the Empirics of Economic Growth

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

/pdf/endogenous-technological-change-4yzdlw043b.pdf

Endogenous Technological Change

Existing strategies for econometric analysis related to macroeconomics are subject to a number of serious objections, some recently formulated, some old. These objections are summarized in this paper, and it is argued that taken together they make it unlikely that macroeconomic models are in fact over identified, as the existing statistical theory usually assumes. The implications of this conclusion are explored, and an example of econometric work in a non-standard style, taking account of the objections to the standard style, is presented. THE STUDY OF THE BUSINESS cycle, fluctuations in aggregate measures of economic activity and prices over periods from one to ten years or so, constitutes or motivates a large part of what we call macroeconomics. Most economists would agree that there are many macroeconomic variables whose cyclical fluctuations are of interest, and would agree further that fluctuations in these series are interrelated. It would seem to follow almost tautologically that statistical models involving large numbers of macroeconomic variables ought to be the arena within which macroeconomic theories confront reality and thereby each other. Instead, though large-scale statistical macroeconomic models exist and are by some criteria successful, a deep vein of skepticism about the value of these models runs through that part of the economics profession not actively engaged in constructing or using them. It is still rare for empirical research in macroeconomics to be planned and executed within the framework of one of the large models. In this lecture I intend to discuss some aspects of this situation, attempting both to offer some explanations and to suggest some means for improvement. I will argue that the style in which their builders construct claims for a connection between these models and reality-the style in which "identification" is achieved for these models-is inappropriate, to the point at which claims for identification in these models cannot be taken seriously. This is a venerable assertion; and there are some good old reasons for believing it;2 but there are also some reasons which have been more recently put forth. After developing the conclusion that the identification claimed for existing large-scale models is incredible, I will discuss what ought to be done in consequence. The line of argument is: large-scale models do perform useful forecasting and policy-analysis functions despite their incredible identification; the restrictions imposed in the usual style of identification are neither essential to constructing a model which can perform these functions nor innocuous; an alternative style of identification is available and practical. Finally we will look at some empirical work based on an alternative style of macroeconometrics. A six-variable dynamic system is estimated without using 1 Research for this paper was supported by NSF Grant Soc-76-02482. Lars Hansen executed the computations. The paper has benefited from comments by many people, especially Thomas J. Sargent

/pdf/macroeconomics-and-reality-3v6kkpl8jz.pdf

Macroeconomics and reality

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w3210.pdf?abstractid=226703&mirid=1

Application of Linear Programming to the Theory of the Firm

pollution. In the nature of the case, many of you will know more than I do about the physical and chemical causes and the biological consequences of environmental pollution. But pollution is also an economic problem, and economists have rather special ways of thinking about it, with implications for the design of environmental policy. What I can hope to do is to put the problem of pollution into the economist's framework, to see if that way of regarding it leads to any basic principles of regulation and control. The ancient economists used to classify productive resources as Land, Labor, and Capital. In this classification "Land" stood for all those natural resources that are given in amount and cannot be augmented by human decision. Some natural resources are

The Economist's Approach to Pollution and Its Control

https://www.diw.de/documents/dokumentenarchiv/17/43043/bnl_manifesto.pdf

An economists’ Manifesto on unemployment in the European Union

The paper begins by discussing and comparing informally the pictures of the aggregate economy that underlie three current approaches to theoretical macroeconomics: equilibrium theory, the 'post-Keynesian approach,' and fixed (or sticky) price models. Regarding the last as much the most promising, the paper then describes a handful of hypotheses about the labour market, more complementary than rival, that might explain the (downward) stickiness of wages. A recurrent theme is that the background assumption of optimizing agents is capable of yielding quite unclassical results if the utility function and the perceived constraints are slightly unconventional. Differentes approches a la throrie macroconomique: une vue partielle/partiale. L'auteur presente sans ceremonie une discussion et une comparaison des images de l'economie globale qui sous-tendent les approches en vogue en macroeconomie theorique: la theorie de l'equilibre, l'approche post-keynesienne, et les modeles 'a prix plus ou moins rigides. Comme l'auteur considere ce dernier groupe comme le plus prometteur, il s'attache a examiner quelques hypotheses bien davantage complementaires que rivales pour expliquer la rigidite a la baisse des salaires dans le marche du travail. L'un des leitmotivs de cet article est que le postulat conventionnel d'agents economiques optimisateurs peut fort bien engendrer des resultats tout a fait nonclassiques si la fonction d'utilite ou les contraintes pergues par les agents sont elles memes inhabituelles. I wonder if anyone has noticed that the title of this lecture contains a pun. There are indeed several alternative approaches to macro-theory now current, and I want to say something about them. Perhaps I seem to have promised a partial view in the sense that to do the opposite would be to offer a 'complete' view. Well, I do mean that; but even more than that I mean a partial view as opposed to an 'impartial' one. I want to begin by characterizing the main schools of thought in contemThis is the text of the W.A. Mackintosh Lecture delivered at Queen's University in March 1979. Except for the addition of a few footnote references to the literature, I have not tried to disguise the informal tone of the original. I would like to thank Mrs Mackintosh and the members of the Department of Economics at Queen's University for their hospitality and friendship. My colleague Stanley Fischer helped me with comments and advice. Canadian Journal of Economics / Revue canadienne d'Economique, XII, no. 3 August / aout 1979. Printed in Canada / Imprini6 au Canada. 0008-4085 /79 / 0000-0339 $01.50 / (?) 1979 Canadian Economics Association This content downloaded from 157.55.39.223 on Wed, 24 Aug 2016 04:49:54 UTC All use subject to http://about.jstor.org/terms 340 / Robert M. Solow porary macroeconomics, mainly because I think it is very important to keep straight the preconceptions that underlie each one. Otherwise it is too easy to accept quite powerful conclusions without a clear grasp of the assumptions to which they are logically bound. The mass media and the business press do that all the time when they popularize economic ideas. Then, I want to concentrate on the particular approach that seems to me the most sensible and trustworthy and say a little about the state of theoretical research within that approach and about some analytical trails that seem to need investigation. Macroeconomics is now, as it has always been, the subject of intense controversy. There must be several different reasons for this: for instance the policy stakes are large; the ultimate test of any theory, conformity with the facts, often turns out to be inconclusive and perhaps indecipherable; and it is even possible that the institutional environment changes, so that a theory adequate for one decade may fail in the next. You may think of still other reasons. In any case one can distinguish three or four general approaches or stances or theoretical positions that compete for attention and allegiance

Alternative Approaches to Macroeconomic Theory: A Partial View

The use of fiscal policy as a stabilization device has all but vanished, more or less explicitly in Europe and de facto in the United States. The practical consequences have not been entirely satisfactory, in either place. So it is important and timely that the Oxford Review is devoting a special issue to the macroeconomics of fiscal policy. In this paper I want to discuss two underlying questions about the eclipse of fiscal policy. Why did this happen and was it a good ideaq And if it was not a good idea, then what followsq Copyright 2005, Oxford University Press.

Robert M. Solow

Papers

Application of Linear Programming to the Theory of the Firm

The Economist's Approach to Pollution and Its Control

An economists’ Manifesto on unemployment in the European Union

Alternative Approaches to Macroeconomic Theory: A Partial View

Rethinking Fiscal Policy