A Model of Economic Growth
About: This article is published in The Economic Journal.The article was published on 1957-12-01. It has received 2049 citations till now. The article focuses on the topics: Economic expansion.
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TL;DR: The authors showed that the global labor share has signicantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries, and that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced rms.
Abstract: The stability of the labor share of income is a key foundation in macroeconomic models. We document, however, that the global labor share has signicantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced rms
1,578 citations
TL;DR: In this paper, the authors show that large technology shocks are needed to produce realistic business cycles, while Solow residuals are sufficiently volatile, these imply frequent technological regress, suggesting the imminent demise of real business cycles.
Abstract: The Real Business Cycle (RBC) research program has grown spectacularly over the last decade, as its concepts and methods have diffused into mainstream macroeconomics. Yet, there is increasing skepticism that technology shocks are a major source of business fluctuations. This chapter exposits the basic RBC model and shows that it requires large technology shocks to produce realistic business cycles. While Solow residuals are sufficiently volatile, these imply frequent technological regress. Productivity studies permitting unobserved factor variation find much smaller technology shocks, suggesting the imminent demise of real business cycles. However, we show that greater factor variation also dramatically amplifies shocks: a RBC model with varying capital utilization yields realistic business cycles from small, nonnegative changes in technology.
1,255 citations
TL;DR: Benabou as discussed by the authors developed a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the Industrial Revolution to modern growth.
Abstract: This paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development. It argues that the positive impact of inequality on the growth process was reversed in this process. In early stages of the Industrial Revolution, when physical capital accumulation was the prime source of growth, inequality stimulated development by channelling resources towards individuals with a higher propensity to save. As human capital emerged as a growth engine, equality alleviated adverse effects of credit constraints on human capital accumulation, stimulating the growth process. This research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the Industrial Revolution to modern growth. The proposed theory offers a unified account for the effect of income inequality on the growth process during this transition. It argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development. In the early stages of the Industrial Revolution, when physical capital accumulation was the prime source of economic growth, inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher. In the later stages of the transition to modern growth, as human capital emerged as a prime engine of economic growth, equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process. The proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development: the Classical approach and the Credit Market Imperfection approach. 1 The Classical approach was originated by Smith (1776) and was further interpreted and developed by Keynes (1920), Lewis (1954), Kaldor (1957), and Bourguignon (1981). According to this approach, saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1. The socio-political economy approach provides an alternative mechanism: equality diminishes the tendency for socio-political instability, or distortionary redistribution, and hence it stimulates investment and economic growth. See the comprehensive survey of Benabou (1996b).
898 citations
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TL;DR: In this article, the authors re-examine the effectiveness of foreign aid theoretically and empirically using a standard OLG model and show that aid inflows will in general affect long-run productivity.
Abstract: The present paper re-examines the effectiveness of foreign aid theoretically and empirically. Using a standard OLG model we show that aid inflows will in general affect long-run productivity. The size and direction of the impact may depend on policies, 'deep' structural characteristics and the size of the inflow. The empirical analysis investigates these possibilities. Overall we find that aid has been effective in spurring growth, but the magnitude of the effect depends on climate-related circumstances. Finally, we argue that the Collier-Dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate.
888 citations
17 Feb 2014
TL;DR: In this paper, the authors show that from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact undercut economic growth (except in extreme cases).
Abstract: The Fund has recognized in recent years that one cannot separate issues of economic growth and stability on one hand and equality on the other. Indeed, there is a strong case for considering inequality and an inability to sustain economic growth as two sides of the same coin. Central to the Fund’s mandate is providing advice that will enable members’ economies to grow on a sustained basis. But the Fund has rightly been cautious about recommending the use of redistributive policies given that such policies may themselves undercut economic efficiency and the prospects for sustained growth (the so-called “leaky bucket” hypothesis written about by the famous Yale economist Arthur Okun in the 1970s). This SDN follows up the previous SDN on inequality and growth by focusing on the role of redistribution. It finds that, from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact undercut economic growth (except in extreme cases). One should be careful not to assume therefore—as Okun and others have—that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.
816 citations