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2 The Global Macroeconomy (Fach) / R3 - Growth Accounting (Lektion)
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- Levers on Trend Growth The gains from boosting the long-run rate of growth in an economy are enormous and much larger thanthe gains from stabilizing business cycles. Even small differences in growth rates have a substantial impactover long periods of time
- Growing Population Thomas Malthus: With the stock of natural resources fixed, he reasonedthe only way of producing more output was to use more labor. However, with afinite amount of natural resources, there was a limit to the size of the population andthus also a limit to the amount of output the population could produce The last 200 years, the interaction between increases in the capital stock and increasing technological knowledge has meant that Malthusian fears of a limit on world population have not been realized. LIFE EXPECTANCY In 1662 a newborn baby in England had a 64% chance of surviving to age 6 compared to a 99% chance in modern America. Life expectancy depends on many things, not the least of which are medical knowledge and diet. Higher income helps by enabling better nutrition and financing the production of medicines and medical research. IMPROVEMENTS IN THE STANDARD OF LIVING Reducing world poverty is summarized in the United Nation’s Millenium Development Goals, which aim to reduce by half the proportion of people living on less than $1 a day Growth and poverty linkages. GDP growth can theoretically have varied effects onpoverty (who benefits from gdp growth vs inequality?) Central Way: Pro-Poor GDP growth
- L Employment = proportion of individuals who want a job and who have one (1-unmployment rate) Participation = percentage of the population who wish to have a job and be part of the labor force depend on demographic factors (number of school-age children and pensioners, and soforth) cultural factors (attitudes towards childcare, female participation in the laborforce) economic factors (how generous are pensions, how easy it is for firms to hirepart time workers, and so forth USA has highest GDP per capita - average hours worked is high and the United States performs well in achieving low unemployment and a high participation rate. GDP per capita is the product of hourly productivity and the number of hours worked. Hours worked can be affected by labor market policies such as lowering unemployment and raising participation rates, but this cannot occur indefinitely. Boosting hourly productivity is the only means to achieve sustained long-run growth.
- TFP and Factor Inputs catchall term that reflects any factor which influences the efficiency with whichcapital and labor are combined to produce output. the capital stock the worker has to interact with the education and skills of the employee, the level of technology in the firm, the efficiency with which a firm combines capital and labor and incentivizes good working practices
- Capital Stock K collection of durable assets that help generate output of goods and services three components residential buildings nonresidential buildings equipment (e.g., machines). Average Length of Life of Physical Capital (in Years) Equipment, i.e. 11-15 Structures, i.e. 40-60 Capital is a stock that accumulates over time, it is much larger than the flow of GDP produced within a year. In order to analyize whether capital stock can boost output, we should exclude residential structures and household capital stock, as these capital stock provides services and is not recorded in GDP. In Industrialized nations, buildings account for approximately 60% of the capital stock.
- L Labour Force = Employed 50% Unemployed 3% Out of Labour Force 25% (Do not want Job) Institutional 25% (Military, Prison, School Kids) -> Rising populations have led to big increases in employment -> Increasing hours is not a beneficial as increasing GDP from higher productivity
- Growth Accounting we need to know how changes in each of the factors of production leads tochanges in output. The marginal product of capital Tmarginal product of labor captures this information marginal product that only one factor input is being changed—the idea is to isolate the role of each input Cobb-Doulgas Production Function = Output = TFP x Capital Stocka x Hours Worked1-a Marginal Product of Capital = a x TFP x (Hours Worked/Capital Stock)1-a In Growth Accounting: log Y = log A + a x log C + (1-a) x log L Chane in log Y = Change in log A + a x Change in log C + (1-a) x Change in log L % Change in Ouput = % Change in TFP + a x % Change in Capital + (1-a)
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