Description and contextualization of the subject

The Growth and Development course provides EAP Master students with the basic tools to analyze: (i) the main causes of the observed cross-country differences in per capita Gross Domestic Product (GDP), (ii) the relevance of Total Factor Productivity versus factors of production in explaining cross-country differences in per capita GDP; (iii) the causes of resource misallocation and its implication for observed cross-country differences in per capita GDP; (iv) the role of endogenous technological change in explaining long-run growth in GDP per capita; (v) the implications of considering a small open economy as opposed to a closed economy.

Background requirements include basic knowledge about: (i) dynamic optimization, (ii) dynamic general equilibrium (at least, the Ramsey-Cass-Koopmans model and the Overlapping-Generations model), (iii) calibration, (iv) basic statistics and (v) Stata and Matlab. Knowledge attainment of these specific requirements is achieved during the first two blocks of the Master program.

Section I of the course starts by providing some empirical facts: i) about historical data on growth of per capita income, and (ii) about the observed cross-country differences in per capita income and growth of per capita income over the last century.

Section II analyzes the Neoclassical growth framework. Topic 2 introduces a Neoclassical growth model augmented with human capital, the Mankiw, Romer and Weil (1992) model (MRW). Topic 3 presents the Level Accounting exercise to study the contribution of production inputs and Total Factor Productivity (TFP) in the observed cross-country differences in per capita income. Section III focuses on the theoretical analysis to explain long-run economic growth. Therefore, topics 4-5 focus on some endogenous growth models and topic 6 focuses on growth accounting. Endogenous growth models are characterized by the fact that the long-run growth rate of per capita income is endogenously determined by the characteristics of the economy. As a result, there is room for economic policy recommendations to enhance long-run growth. Topic 4 considers the simplest endogenous growth model (the AK model). Topic 5 is aware of the special characteristics of the technology (a non-rival and partially excludable good), and that improvement in the technology is at the heart of economic growth. Topic 6 focuses on the growth accounting exercise, which analyzes the contribution of production factors and Total Factor Productivity (TFP) on the growth rate of GDP of a given country.

Section IV considers a simple small open economy to analyze the long-run economic growth rate under free trade and its comparison with the long-run economic growth under autarchy.

Finally, the aim of the last section is to make a deep analysis of the aggregate TFP. In this Topic, firstly, we consider the two components of TFP: technology and efficiency. Secondly, we briefly present some literature that focuses on the fundamental causes of cross-country differences in TFP (mostly in efficiency). Thirdly, we consider the relevance of some distortions, due to weak institutions, that cause misallocation of resources and reduce aggregate efficiency, and hence TFP and per capita GDP.

Learning outcomes of the subject

1. Provide a rational analysis of economic growth based on dynamic general equilibrium models (Neoclassical growth and endogenous growth models).

2. Provide the appropriate tools to study the contribution of each factor (production factor and TFP) to the observed cross-country differences in per capita income.

3. Identify the relevant factors of the observed cross-country differences in per capita income between developed and underdeveloped economies, and within underdeveloped economies.

4. Provide the appropriate tools to study the contribution of each factor (production factor and TFP) to the observed growth rate of GDP of a given country.

5. Identify the relevant factors of the observed cross-country differences in the long-run economic growth rate.

6. Identify simple economic policy recommendations to enhance the long-run growth rate of per capita income, based on the description of the economy.

Ordinary call: orientations and renunciation

The evaluation system has two components:



• Two assignments showing student level of expertise in: (i) collecting data and carrying out an empirical analysis, (ii) solving growth models and obtaining their main empirical implications, (iii) evaluating the effects of economic policies on the growth rate of per capita income, in the short-run and in the long-run, (iv) assessing the effects of trade policies in small open economies. Assignments can be done in groups, but they have to be handed individually. Assignments have to be handed in at the due date. Assignments handed in after the deadline will not be graded. The weight of each homework in the final grade is 15%.



• An exam at the end of the course, whose weigh is 70% of the final grade.



The evaluation method is identical in the two opportunities to pass the course.



Because of the COVID-19, the assessment method could change if it has to be online.

Extraordinary call: orientations and renunciation

The evaluation system has two components:



• Two assignments showing student level of expertise in: (i) collecting data and carrying out an empirical analysis (development accounting and growth accounting exercises), (ii) solving growth models and obtaining their main empirical implications, (iii) evaluating the effects of economic policies on the level and growth rate of per capita income, in the short-run and in the long-run, (iv) assessing the effects of trade policies in small open economies. Assignments can be done in groups, but they have to be handed individually. Assignments have to be handed in at the due date. Assignments handed in after the deadline will not be graded. The weight of each homework in the final grade is 15%.



• An exam at the end of the course, whose weigh is 70% of the final grade.



The evaluation method is identical in the two opportunities to pass the course.

Temary

Section One: Introduction

Topic 1.- Introduction.

1.1.- GDP per capita.

1.2.- Average annual growth rates.

1.3.- Relevance of Growth: an Experiment.

1.4.-.”Stylized facts” of Economic Growth.

1.5.- Outline of the rest of the course.



Section Two: Neoclassical Growth and cross-country differences in per capita GDP.





Topic 2.- An augmented neoclassical model with human capital.



2.1.- Introduction.

2.2.- The model.

2.3.- Data.

2.4.- Cross-country regressions.

2.5.- Conclusions.





Topic 3 – Level Accounting.



3.1.- Basic Set-up.

3.2.- Data.

3.3.- Some empirical findings:



Section Three: Endogenous Growth Models.





Topic 4.- A simple endogenous growth model: The “AK” model.



4.1.- Introduction.

4.2.- The AK model:

4.3.- Overlapping-Generations economy with an AK technology.







Topic 5- Technological Change as an engine of growth.



5.1.- Introduction.

5.2.- The model.

5.3.- Conclusions.





Topic 6 – Growth Accounting.



6.1.- Introduction.

6.2.- Growth accounting.

(i) Basic Set-up.

(ii) Adding Human Capital.

(iii) Isolating contribution of inputs and TFP.

6.3.- Some Growth Accounting exercises.







Section Four: Small Open Economy



Topic 7 – Growth in a small open economy



7.1.- Introduction.

7.2.- A simple model with no physical capital.

(i) Description of the economy.

(ii) Equilibrium under autarchy.

(iii) Equilibrium in a small open economy.

(iv) Policy recommendations.



7.3.- Conclusions.



Section Five: Total Factor Productivity



Topic 8 –TFP: A deep analysis of the aggregate TFP.



8.1.- Introduction.

8.2.- Technology and Efficiency.

8.3.- Institutions, Distortions, Misallocation and Aggregate TFP.

8.4.- Some final comments.

Bibliography

Compulsory materials

Acemoglu, Daron, 2007a, "Introduction to Modern Economic Growth", Chapters 1 and 3.







Barro, Robert J. and Xavier Sala-i-Martin, Economic Growth, Second Edition (Cambridge: MIT Press, 2004), Chapters 1-3,4-6,10-12.







Weil, D.N., 2013, "Economic Growth”, Pearson Education Inc., Publishing as Addison-Wesley.







Lecture notes.

Basic bibliography

Acemoglu, Daron, 2007a, "Introduction to Modern Economic Growth", Chapters 1 and 3.



Barro, Robert J. and Xavier Sala-i-Martin, Economic Growth, Second Edition (Cambridge: MIT Press, 2004), Chapters 1-3,4-6,10-12.



** Hall, Robert E. and Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?" Quarterly Journal of Economics 114(1): 83-116.



Hsieh, C., Klenow, P., 2010. “Development accounting”. American Economic Journal: Macroeconomics 2 (1), 207–223.



** Lucas, Robert E. Jr., “On the Mechanics of Economic Development”, Journal of Monetary Economics, July 1988, pp. 3-42.



** Mankiw, G., D. Romer and D. Weil, 1992, “A Contribution to the Empirics of Economic Growth”, Quarterly Journal of Economics, Vol. 107(2), pp. 407-437.



** Romer, Paul M., 1990, “Endogenous Technical Change”,. Journal of Political Economy, Vol. 98, pp. S71-S102.



Weil, D.N., 2013, "Economic Growth”, Pearson Education Inc., Publishing as Addison-Wesley.

Links

Penn World Tables: https://www.rug.nl/ggdc/productivity/pwt/



OECD data: http://stats.oecd.org/



International Financial Statistics (IMF): 



http://www.allthatstats.com/en/statistics/ifs_new/international-financial-statistics/



EU KLEMS data: http://www.euklems.net/