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The Economics of Growth
TL;DR: The Economics of Growth as mentioned in this paper is a comprehensive introduction to economic growth, presenting the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design.
Abstract: This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations. The Economics of Growth first presents the main growth paradigms: the neoclassical model, the AK model, Romer's product variety model, and the Schumpeterian model. The text then builds on the main paradigms to shed light on the dynamic process of growth and development, discussing such topics as club convergence, directed technical change, the transition from Malthusian stagnation to sustained growth, general purpose technologies, and the recent debate over institutions versus human capital as the primary factor in cross-country income differences. Finally, the book focuses on growth policies—analyzing the effects of liberalizing market competition and entry, education policy, trade liberalization, environmental and resource constraints, and stabilization policy—and the methodology of growth policy design. All chapters include literature reviews and problem sets. An appendix covers basic concepts of econometrics.
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TL;DR: In this article, the authors characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers.
Abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both "carbon taxes" and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.
1,669 citations
TL;DR: In this paper, the authors present a consistent methodology to derive (per capita) GDP trend pathways on a country basis, based on a convergence process and places emphasis on the key drivers of economic growth in the long run: population, total factor productivity, physical capital, employment and human capital.
Abstract: Long-term economic scenarios (up to 2100) are needed as a basis to explore possible different futures for major environmental challenges, including climate change. Given the high level of uncertainty involved, such scenarios would need to span a wide range of possible growth trajectories. The recently developed storylines of the Shared Socioeconomic Pathways (SSPs) provide a basis for making such projections. This paper describes a consistent methodology to derive (per capita) GDP trend pathways on a country basis. The methodology is based on a convergence process and places emphasis on the key drivers of economic growth in the long run: population, total factor productivity, physical capital, employment and human capital, and energy and fossil fuel resources (specifically oil and gas). The paper uses this methodology to derive country-level economic growth projections for 184 countries. The paper also investigates the influence of short-term growth rate estimates on the long-term income levels in various countries. It does so by comparing long-term projections based on short-term forecasts from 2011 with the projections based on forecasts from 2013. This highlights the effects of the recent economic crisis and uncertainty in short term developments on longer term growth trends. The projections are subject to large uncertainties, particularly for the later decades, and disregard a wide range of country-specific drivers of economic growth that are outside the narrow economic framework, such as external shocks, governance barriers and feedbacks from environmental damage. Hence, they should be interpreted with sufficient care and not be treated as predictions.
520 citations
TL;DR: In this article, the authors investigate the long-run growth effects of financial development in Ghana and find that the growth effect is sensitive to the choice of proxy, while broad money stock to GDP ratio is not growth-inducing.
277 citations
TL;DR: In this paper, the authors build a Schumpeterian model in which entrepreneurs earn profits by inventing better goods and profit-maximizing financiers arise to screen entrepreneurs.
236 citations
TL;DR: In this article, Wiedenhofer et al. evaluate empirical studies of decoupling related to final/useful energy, exergy, use of material resources, as well as CO2 and total GHG emissions.
Abstract: Strategies toward ambitious climate targets usually rely on the concept of "decoupling"; that is, they aim at promoting economic growth while reducing the use of natural resources and GHG emissions. GDP growth coinciding with absolute reductions in emissions or resource use is denoted as "absolute decoupling", as opposed to "relative decoupling", where resource use or emissions increase less so than does GDP. Based on the bibliometric mapping in part I (Wiedenhofer et al., this issue), we synthesize the evidence emerging from the selected 835 peer-reviewed articles. We evaluate empirical studies of decoupling related to final/useful energy, exergy, use of material resources, as well as CO2 and total GHG emissions. We find that relative decoupling is frequent for material use as well as GHG and CO2 emissions but not for useful exergy, a quality-based measure of energy use. Primary energy can be decoupled from GDP largely to the extent to which the conversion of primary energy to useful exergy is improved. Examples of absolute long-term decoupling are rare, but recently some industrialized countries have decoupled GDP from both production- and, weaklier, consumption-based CO2 emissions. We analyze policies or strategies in the decoupling literature by classifying them into three groups: (1) Green growth, if sufficient reductions of resource use or emissions were deemed possible without altering the growth trajectory. (2) Degrowth, if reductions of resource use or emissions were given priority over GDP growth. (3) Others, e.g. if the role of energy for GDP growth was analyzed without reference to climate change mitigation. We conclude that large rapid absolute reductions of resource use and GHG emissions cannot be achieved through observed decoupling rates, hence decoupling needs to be complemented by sufficiency-oriented strategies and strict enforcement of absolute reduction targets. More research is needed on interdependencies between wellbeing, resources and emissions.
230 citations