1 macroeconomics and the global business environment total factor productivity, human capital, and...
TRANSCRIPT
1
MACROECONOMICSAND THE GLOBAL BUSINESS ENVIRONMENT
Total Factor Productivity, Human Capital, and Technology
Copyright © 2005 John Wiley & Sons, Inc. All rights reserved. PowerPoint by Beth IngramUniversity of Iowa
5-2
Key Concepts
Total Factor Productivity Human Capital Technological Progress Foreign Direct Investment
5-3
Capital
Rea
l GD
P
Effect of shift in production function
K0K1
Production Function, Old
Production Function, New
Investment, Old
Investment, New
Depreciation
5-4
Production Function Shift
Increase in Output due to function shift Increase in Labor Increase in TFP
Increase in Output due to increase in capital Economy moves to new steady state As capital increases, output increases
Why does production function shift?
5-6
Human Capital
GDP per capita =
GDP Hours Number Employed Labor Force
Hours Number Employed Labor Force Population
Human Capital increases Labor Productivity
5-7
Capital
Rea
l GD
P
More human capital
KLowKHigh
Output, Low Human Capital
Output, High Human Capital
Investment, Low
Investment, High
Depreciation
5-8
Human Capital
Increase means more output, even at current levels of physical capital and labor
Increase means higher steady state level of output and capital
May explain cross-country growth differentials
5-10
How to increase human capital?
Educational attainment Expenditures on education
Allocation of resources Level of education Cost of education
5-12
Percentage of students completing the final year of primary school
Source: World Bank Millennium Development Goals
5-13
Review
Cross-country differentials in per capita output are substantial Role of physical capital Role of human capital
Significant fraction of differential is unexplained – we call this “TFP” Other elements of TFP
5-14
Institutions
Property Rights Regulatory Institutions Macroeconomic Stabilization Social Insurance Conflict Management Political Rights
5-15
World Bank Indicators
Voice and accountability Political stability and lack of violence Government effectiveness Regulation quality Rule of law Corruption
5-16
Political Stability
Congo, Dem. Rep. (Zaire)
LIBERIA
AFGHANISTAN
IVORY COAST
BURUNDI
SOMALIA
SUDAN
GEORGIA
CENTRAL AFRICAN REPUBLIC
COLOMBIA
NEW ZEALAND
NETHERLANDS
SWEDEN
PORTUGAL
NORWAY
MALTA
LUXEMBOURG
ICELAND
SWITZERLAND
FINLAND
Bottom 10 Top 10
5-17
Corruption
Congo, Dem. Rep. (Zaire)
LIBERIA
SOMALIA
IRAQ
MYANMAR
CAMBODIA
TURKMENISTAN
TAJIKISTAN
CAMEROON
ANGOLA
ICELAND
NORWAY
NETHERLANDS
CANADA
SINGAPORE
NEW ZEALAND
SWEDEN
FINLAND
DENMARK
SWITZERLAND
Bottom 10 Top 10
5-18
Rent Seeking
Activity in which value-added produced by one person is taken by another
Examples Water subsidies Sugar tariffs Insider contracts or trading
Concerns Absorbs resources (labor and capital) Acts as a tax Rent seeking crowds out production
5-19
R & D
Growth can be sustained through technological progress
Role of Research and Development in promoting technological progress
Example of South Korea
5-21
0
200
400
600
800
0 5000 10000 15000 20000 25000 30000 35000
GDP per Capita, 1997
R&
D p
er C
apit
a, 1
997
Rich countries spend more on R&D
5-22
Foreign Direct Investment
Investment by foreign firms in an economy Encourages capital accumulation and
technology transfer Can facilitate convergence among countries
5-24
The New Economy
Role of ICT Information and Communication Technology
(sometimes just IT) How does IT produce growth?
Through capital accumulation TFP gains in adopting sectors TFP in sectors that produce IT
5-26
Contribution of IT capital to US non-farm business output
Source : Oliner and Sichel (2000) The resurgence of Growth in the late 1990s : Is IT the story? Federal Reserve Board mimeo
5-27
Summary
Effect of increases in TFP Effect of human capital accumulation Other influences on growth
Institutions Technological Progress FDI IT capital accumulation
Copyright © 2005 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained therein.