The Economics of Growth

by Aghion, Howitt

ISBN: 9780262303897 | Copyright 2008

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This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations.

The Economics of Growth first presents the main growth paradigms: the neoclassical model, the AK model, Romer’s product variety model, and the Schumpeterian model. The text then builds on the main paradigms to shed light on the dynamic process of growth and development, discussing such topics as club convergence, directed technical change, the transition from Malthusian stagnation to sustained growth, general purpose technologies, and the recent debate over institutions versus human capital as the primary factor in cross-country income differences. Finally, the book focuses on growth policies—analyzing the effects of liberalizing market competition and entry, education policy, trade liberalization, environmental and resource constraints, and stabilization policy—and the methodology of growth policy design. All chapters include literature reviews and problem sets. An appendix covers basic concepts of econometrics.

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Contents (pg. vii)
Preface (pg. xvii)
Why This Book? (pg. xvii)
For Whom? (pg. xviii)
Outline of the Book (pg. xix)
Acknowledgments (pg. xxi)
Introduction (pg. 1)
I.1 Why Study Economic Growth? (pg. 1)
I.2 Some Facts and Puzzles (pg. 1)
I.3 Growth Policies (pg. 6)
I.4 Four Growth Paradigms (pg. 12)
Part I. Basic Paradigms of Growth Theory (pg. 19)
Chapter 1. Neoclassical Growth Theory (pg. 21)
1.1 Introduction (pg. 21)
1.2 The Solow-Swan Model (pg. 21)
1.3 Extension: The Cass-Koopmans-Ramsey Model (pg. 31)
1.4 Conclusion (pg. 39)
1.5 Literature Notes (pg. 39)
Appendix 1A: Steady State and Convergence in the Cass-Koopmans-Ramsey Model (pg. 40)
Appendix 1B: Dynamic Optimization Using the Hamiltonian (pg. 43)
Problems (pg. 45)
Chapter 2. The AK Model (pg. 47)
2.1 Introduction (pg. 47)
2.2 A Neoclassical Version of Harrod-Domar (pg. 49)
2.3 An AK Model with Intertemporal Utility Maximization (pg. 52)
2.4 The Debate between Neoclassical and AK Advocates, in a Nutshell (pg. 56)
2.5 An Open-Economy AK Model with Convergence (pg. 60)
2.6 Conclusion (pg. 66)
2.7 Literature Notes (pg. 67)
Problems (pg. 67)
Chapter 3. Product Variety (pg. 69)
3.1 Introduction (pg. 69)
3.2 Endogenizing Technological Change (pg. 69)
3.3 From Theory to Evidence (pg. 77)
3.4 Conclusion (pg. 80)
3.5 Literature Notes (pg. 81)
Problems (pg. 82)
Chapter 4. The Schumpeterian Model (pg. 85)
4.1 Introduction (pg. 85)
4.2 A One-Sector Model (pg. 85)
4.3 A Multisector Model (pg. 92)
4.4 Scale Effects (pg. 96)
4.5 Conclusion (pg. 99)
4.6 Literature Notes (pg. 100)
Problems (pg. 101)
Chapter 5. Capital, Innovation, and Growth Accounting (pg. 105)
5.1 Introduction (pg. 105)
5.2 Measuring the Growth of Total Factor Productivity (pg. 106)
5.3 Some Problems with Growth Accounting (pg. 109)
5.4 Capital Accumulation and Innovation (pg. 113)
5.5 Conclusion (pg. 119)
5.6 Literature Notes (pg. 119)
Appendix: Transitional Dynamics (pg. 120)
Problems (pg. 121)
Part II. Understanding the Growth Process (pg. 127)
Chapter 6. Finance and Growth (pg. 129)
6.1 Introduction (pg. 129)
6.2 Innovation and Growth with Financial Constraints (pg. 130)
6.3 Credit Constraints, Wealth Inequality, and Growth (pg. 136)
6.4 The Empirical Findings: Levine’s Survey, in a Nutshell (pg. 142)
6.5 Conclusion (pg. 147)
6.6 Literature Notes (pg. 147)
Problems (pg. 148)
Chapter 7. Technology Transfer and Cross-Country Convergence (pg. 151)
7.1 Introduction (pg. 151)
7.2 A Model of Club Convergence (pg. 152)
7.3 Credit Constraints as a Source of Divergence (pg. 158)
7.4 Conclusion (pg. 163)
7.5 Literature Notes (pg. 165)
Problems (pg. 166)
Chapter 8. Market Size and Directed Technical Change (pg. 169)
8.1 Introduction (pg. 169)
8.2 Market Size in Drugs (pg. 169)
8.3 Wage Inequality (pg. 173)
8.4 Appropriate Technology and Productivity Differences* (pg. 182)
8.5 Conclusion (pg. 186)
8.6 Literature Notes (pg. 187)
Problems (pg. 188)
Chapter 9. General-Purpose Technologies (pg. 193)
9.1 Introduction (pg. 193)
9.2 Explaining Productivity Slowdowns (pg. 196)
9.3 GPT and Wage Inequality (pg. 204)
9.4 Conclusion (pg. 210)
9.5 Literature Notes (pg. 211)
Problems (pg. 212)
Chapter 10. Stages of Growth (pg. 217)
10.1 Introduction (pg. 217)
10.2 From Stagnation to Growth (pg. 217)
10.3 From Capital Accumulation to Innovation (pg. 226)
10.4 From Manufacturing to Services (pg. 230)
10.5 Conclusion (pg. 232)
10.6 Literature Notes (pg. 232)
Problems (pg. 233)
Chapter 11. Institutions and Nonconvergence Traps (pg. 237)
11.1 Introduction (pg. 237)
11.2 Do Institutions Matter? (pg. 238)
11.3 Appropriate Institutions and Nonconvergence Traps (pg. 243)
11.4 Conclusion (pg. 258)
11.5 Literature Notes (pg. 261)
Problems (pg. 263)
Part III. Growth Policy (pg. 265)
Chapter 12. Fostering Competition and Entry (pg. 267)
12.1 Introduction (pg. 267)
12.2 From Leapfrogging to Step-by-Step Technological Progress (pg. 267)
12.3 Entry (pg. 274)
12.4 Conclusion (pg. 281)
12.5 Literature Notes (pg. 282)
Problems (pg. 283)
Chapter 13. Investing in Education (pg. 287)
13.1 Introduction (pg. 287)
13.2 The Capital Accumulation Approach (pg. 288)
13.3 Nelson and Phelps and the Schumpeterian Approach (pg. 298)
13.4 Schumpeter Meets Gerschenkron (pg. 302)
13.5 Conclusion (pg. 311)
13.6 Literature Notes (pg. 312)
Problems (pg. 314)
Chapter 14. Reducing Volatility and Risk (pg. 319)
14.1 Introduction (pg. 319)
14.2 The AK Approach (pg. 321)
14.3 Short-versus Long-Term Investments (pg. 326)
14.4 Risk Diversifi cation, Financial Development, and Growth (pg. 341)
14.5 Conclusion (pg. 347)
14.6 Literature Notes (pg. 348)
Problems (pg. 349)
Chapter 15. Liberalizing Trade (pg. 353)
15.1 Introduction (pg. 353)
15.2 Preliminary: Back to the Multisector Closed-Economy Model (pg. 355)
15.3 Opening Up to Trade, Abstracting from Innovation (pg. 358)
15.4 The Effects of Openness on Innovation and Long-Run Growth (pg. 363)
15.5 Conclusion (pg. 371)
15.6 Literature Notes (pg. 372)
Problems (pg. 374)
Chapter 16. Preserving the Environment (pg. 377)
16.1 Introduction (pg. 377)
16.2 The One-Sector AK Model with an Exhaustible Resource (pg. 377)
16.3 Schumpeterian Growth with an Exhaustible Resource (pg. 379)
16.4 Environment and Directed Technical Change (pg. 381)
16.5 Literature Notes (pg. 391)
Appendix: Optimal Schumpeterian Growth with an Exhaustible Resource (pg. 392)
Problems (pg. 395)
Chapter 17. Promoting Democracy (pg. 399)
17.1 Introduction (pg. 399)
17.2 Democracy, Income and Growth in Existing Regressions (pg. 399)
17.3 Democracy, Entry, and Growth: A Simple Model (pg. 401)
17.4 Evidence on the Relationship between Democracy, Growth, and Technological Development (pg. 407)
17.5 Democracy, Inequality, and Growth (pg. 410)
17.6 Conclusion (pg. 414)
17.7 Literature Notes (pg. 414)
Problems (pg. 415)
Conclusion (pg. 417)
Chapter 18. Looking Ahead: Culture and Development (pg. 419)
18.1 What We Have Learned, in a Nutshell (pg. 419)
18.2 Culture and Growth (pg. 420)
18.3 Growth and Development (pg. 429)
18.4 Conclusion (pg. 439)
Appendix: Solving the Doepke-Zilibotti Model (pg. 441)
Appendix: Basic Elements of Econometrics (pg. 443)
A.1 The Simple Regression Model (pg. 443)
A.2 The Ordinary Least Squares Estimator (pg. 444)
A.3 Multiple Regression Analysis (pg. 446)
A.4 Inference and Hypothesis Testing (pg. 447)
A.5 How to Deal with the Endogeneity Problem (pg. 449)
A.6 Fixed-Effects Regressions (pg. 452)
A.7 Reading a Regression Table (pg. 453)
References (pg. 457)
Index (pg. 477)

Philippe Aghion

Philippe Aghion is Robert C. Waggoner Professor of Economics at Harvard University. Aghion is coauthor (with Peter Howitt) of Endogenous Growth Theory (MIT Press, 1997).


Peter W. Howitt

Peter Howitt is Lyn Crost Professor of Social Sciences at Brown University. Howitt is coauthor (with Philippe Aghion) of Endogenous Growth Theory (MIT Press, 1997).


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