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

Samuelson's "Economics" at Fifty: Remarks on the Occasion of the Anniversary of Publication.

This essay offers an unsystematic sketch of seval ways in which economists have approached the need to represent and model changes in technology. It begins with the failures of Ricardo and Mill to respond adequately to the continueing increase of productivity after the Industrial Revolution, and ascribes it to the lack of appropriate analytical technique. It goes on to the question of classification of inventions posed by Hicks, with responses from other authors. It concludes with comments on the current intereste in endogenizing technical profress as a routine profit-seeking activity, with the thought that an uneasy compormise between exogeneous and endogeneous may be the best that can be done.

Stories about economics and technology

It Ain't the Things You Don't Know That Hurt You, It's the Things You Know That Ain't So

My wife and I met Jim and Betty Tobin for the first time in Cambridge, probably in a year like 1947 or 1948, but that was not really the beginning of our friendship. Jim must have finished his Ph.D. thesis by then, and would soon decamp for Yale, neither the first nor the last in a series of humongous Harvard blunders. I was just beginning my graduate work, having come back from the war still an undergraduate. I am pretty sure I had not then read Tobin’s 1941 “Note on the Money Wage Problem.” That was, as I later realized, an interesting excursion into Keynesian economics, interesting even now, I mean. But Tobin had learned about Keynes purely by accident, when he was an undergraduate. Later undergraduates like me were protected against that virus. After I went on to teach at MIT, I knew about Tobin of course. I read his papers on consumer demand, because I was teaching econometrics and looking for good examples of it. He published “A Dynamic Aggregative Model” at just the time when I was working on economic growth, so I recognized a master hand. Jim has said that it was his favorite paper. And of course I read “Liquidity Preference as Behavior Toward Risk” in 1958. The Review of Economic Studies was the preferred journal in those days for eager young middlebrow theorists. Not only was it interesting, it came out only three times a year with a mere handful of articles per issue. If I sound nostalgic for that pace, it is because I am. Then John Kennedy was elected President in 1960. One night in December of that year, after 11 o’clock, my wife and I were already asleep (we had three little kids) when the telephone rang. When I picked it up I found myself talking to Walter Heller, Kermit Gordon, and Jim Tobin, who had already been named as the Chairman and Members of the new Council of Economic Advisers to take office in January. I remember my first question was: “What are you guys doing up this late?” (It should have been a warning about Walter’s work habits.) They wanted me to come to Washington and join the Council staff. I said I’d think about it, went back to bed, told my wife what it was all about, and commented “Why would I want

Introduction: The Tobin Approach to Monetary Economics

satisfaction: the complexity, breadth and depth in conjunction with the unexplicated. I relish the gaps and the loose ends. They create the necessary climate for inspiration; they allow us to utilise what he has to say; they facilitate development. On Cohen's own admission, 'the most significant contributions to social theory always leave as many unsettled issues as those which they explicitly confront' (IC ?. 287). Closed-off arguments like closed systems are invariably dead. For life to exist and for creativity to flourish there . . . . . . . neec to oe varlatlon, Inconslstencles anc gaps, in other words there has to be room for improvement. There is no doubt that Giddens's work deserves attention but we have to take great care that we don't reneer It Inanlmate In t le process. Barbara Adsm

Robert M. Solow

Papers

Samuelson's "Economics" at Fifty: Remarks on the Occasion of the Anniversary of Publication.

Stories about economics and technology

It Ain't the Things You Don't Know That Hurt You, It's the Things You Know That Ain't So

Introduction: The Tobin Approach to Monetary Economics

The Labor Market as a Social Institution