Sources of Growth Analysis

1
Sources of Growth Analysis

• Econ 403
• Development Economics
• Carlos A. Benito

2
Growth of Production
Food
Growth
GDP2
Recovery

GDP1
Manufactures
3
Aggregate Demand Supply
Price Level
LAS2
LAS1
SAS1
SAS2
Growth
Recovery
AD2
AD1
Real GDP
4
Aggregate Production Function
Culture
Technology
GDP Y
Institutions
Capital K
Labor L
N. Resources R
Human Capital H
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In mathematical form
Explanatory Variables
Explained Variable
K H L R t i c
explain
Y
Or Production function Y f(K, H, L, R,
t, i, c)
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Sources of Growth
gi
g
gt
WK
WL
WR
gK
gH
WL
gR
gL
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Sources of Growth Equation
gY a WKgK WHgH WLgL WRgR
a t i
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Sources of Growth
gi
g
gt
6
30
WK
20
20
30
WL
WR
gK
gCh
WCh
gR
gL
3
10
2
2
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Estimation

• Statistical/econometric method Using regression
  methods estimate
• Coefficients (weights) for source of growth
  equation (good for countries as a whole), or
• Coefficients for production function (good for
  production sectors, e.g. agriculture)
• Cobb-Douglas form with constant returns to scale
• Sum of coefficients equal to one.
• Use coefficients as weights for observed growth
  rates of explanatory factors.
• Subtract estimated growth rate from observed
  growth rate. You get estimate for a
• Using Accounting method

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Estimating Factor Weights

• Using Statistics
• Cobb-Douglas Production Function
• Y AKaLb
• a b 1
• LnY Ln Aa.Ln K b.Ln L
• Using econometric to estimate production
  elasticities, a and b. They are the weights

• Using Accounting
• The production elasticities of a and b are also
  the income shares of capital and labor
• Income shares are similar to cost shares,
  therefore
• Using accounting data we can estimate a and b.

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Sources of Growth plus Structuralist propositions
International Terms of Trade Px/pm
Land Reform 0/1
g
WK
WL
WR
gK
gH
WL
gR
gL
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Sources of Growth plus Neo-Liberalism
Trade Expansion XM
g
WK
WL
WR
gK
gH
WL
gR
gL
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Sources of Growth plus Neo-Marxism or Socialism
Income Distribution Potable Water
g
WK
WL
WR
gK
gH
WL
gR
gL
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Aggregate Behavioral Function
Women Status
Development Level
GDP Per capita

Culture
Education
Women School Enrollment
others
Predominant Religion
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