chapter 5 slide 1 copyright © 2003 pearson education, inc
TRANSCRIPT
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Chapter 5 Slide 1Copyright © 2003 Pearson Education, Inc.
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Chapter 5 Slide 2Copyright © 2003 Pearson Education, Inc.
Contemporary Models of Development and Underdevelopment
Chapter 5
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Chapter 5 Slide 3Copyright © 2003 Pearson Education, Inc.
New Growth Theory: Endogenous Growth Motivation for the new growth theory The Romer model
Y AK L Ki i i 1(5.1)
Y AK L 1 (5.2)
g n
1
(5.3)
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Chapter 5 Slide 4Copyright © 2003 Pearson Education, Inc.
New Growth Theory: Endogenous Growth Motivation for the new growth theory The Romer model Criticisms of the new growth theory
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Chapter 5 Slide 5Copyright © 2003 Pearson Education, Inc.
Underdevelopment as a Coordination Failure Coordination failures occur when
agents’ inability to coordinate their actions leads to an outcome that makes all agents worse off
We’ll consider– ‘big push’ models– the ‘O-ring’ model
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Chapter 5 Slide 6Copyright © 2003 Pearson Education, Inc.
Multiple Equilibria: A Diagrammatic Approach Generally, these models can be
diagrammed by graphing an S-shaped function and the 45º line
Equilibria are– stable when the function crosses the 45º
line from above– unstable when the function crosses the 45º
line from below
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Chapter 5 Slide 7Copyright © 2003 Pearson Education, Inc.
Figure 5.1 Multiple Equilibria
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Chapter 5 Slide 8Copyright © 2003 Pearson Education, Inc.
Starting Economic Development: The Big Push Sometimes market failures lead to a
need for public policy intervention The big push: a graphical model
– assumptions
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Chapter 5 Slide 9Copyright © 2003 Pearson Education, Inc.
Figure 5.2 The Big Push
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Chapter 5 Slide 10Copyright © 2003 Pearson Education, Inc.
Starting Economic Development: The Big Push Sometimes market failures lead to a
need for public policy intervention The big push: a graphical model
– assumptions– conditions for multiple eqilibria– other cases in which a big push may be
necessary Why can’t the problem be solved by a
‘super-entrepreneur’?
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Chapter 5 Slide 11Copyright © 2003 Pearson Education, Inc.
Further Problems of Multiple Equilibria Inefficient advantages of incumbency Behavior and norms Linkages Inequality, multiple equilibria, and
growth
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Chapter 5 Slide 12Copyright © 2003 Pearson Education, Inc.
Kremer’s O-Ring Theory of Economic Development The O-ring model
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Chapter 5 Slide 13Copyright © 2003 Pearson Education, Inc.
Figure 5.3 The O-Ring Production Function: Wage as a Function of Human Capital Quality
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Chapter 5 Slide 14Copyright © 2003 Pearson Education, Inc.
Kremer’s O-Ring Theory of Economic Development The O-ring model Implications of the O-ring theory
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Chapter 5 Slide 15Copyright © 2003 Pearson Education, Inc.
Concepts for Review Agency costs Agent Aid failure Asymmetric
information Big push Complementarities Complementary
investments
Congestion Coordination failure Deep intervention Endogenous growth
theory Linkage Multiple equilibria New growth theory O-ring model
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Chapter 5 Slide 16Copyright © 2003 Pearson Education, Inc.
Concepts for Review, cont’d
O-ring production function
Pareto improvement Pecuniary
externalities Poverty trap Prisoners’ dilemma Public good
Romer’s endogenous growth model
Solow residual Technological
externalities Underdevelopment
trap Where-to-meet
dilemma