international economic lecture 2
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IBE303 - Lecture 2 - July 5th, 2010TRANSCRIPT
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Lecture 2Growth TheoriesJuly 5th 2010Saksarun (Jay) Mativachranon
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Intro
•Please turn your mobile phones off or switch it to silent mode and please do not pick up your calls
•Email: [email protected]
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Recap
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Economic Growth
•Measured by Real GDP▫Real GDP indicates the rate of economic
growth but NOT the changes in standard of living
•Standard of living is measured by Real GDP per person (per capital real GDP)
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Sources of Economic Growth
•Simple concept▫The amount of goods that can be produced
with each unit of input▫Inputs is generally referred to as “Factors
of production” Land Capital Goods Labor Entrepreneurial ability
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Example of growth factors• Land – all natural resources
▫Easy to obtain resources equal more production (efficient)
• Capital goods – goods that are used in productions▫China’s supporting industries result in growth the
past decade• Labor
▫Longer working hours or higher productivity equals higher output
• Entrepreneurial ability▫Companies able to put Land / Capital goods / Labor
to good use resulting in higher output
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Incentive System for economic growth•3 Social institutions that are critical for
incentives development▫Markets▫Property rights▫Monetary exchange
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Key Learning Points
•You should be able to;▫Effect from changes in sources of economic
growth▫Compare and Contrast
Classical Growth Theory Neoclassical Growth Theory New Growth Theory
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Economic growth
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Labor Productivity
•What is Labor Productivity?▫Real GDP per labor hour
•2 factors drive Labor Productivity▫Physical capital per labor hour▫Technological change
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Productivity Curve
Capital per Labor Hour
Real GDP per labor hour
Less Technology
More Technology
C1
C2
LP1
LP2
LP3
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ProductivitySlowdown Speedup
• Technology is applied to deal with issues not related to productivity
• Encourage saving leads to capital accumulation
• Encourage Basic R&D▫ Basic research results in
low ROI, this policy is usually from government induced
• International trade• Education
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Economic Growth
•In order for economic to continue growing, societies must encourage▫Savings and investment in new capital▫Investment in human capital▫Discovery of new technologies
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Growth theories
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The 3 popular theories
1. Classical Growth Theory2. Neoclassical Growth Theory3. New Growth Theory
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Classical Growth Theory
Basic Idea▫The growth of real GDP per person is
temporary Real GDP growth leads to population growth
(explosion)▫Real GDP grows above subsistence level
due to population explosion▫Population growth leads to decline in real
GDP Back to subsistence level
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Classical Growth Theory
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Neoclassical Growth Theory
Basic Idea▫Changes in technology lead to increased
saving and investment increased capital per labor hour
▫Technological growth is not influenced by economic growth Technological advances occurs by trial and error
▫Growth will decline if Technology stops advancing Real interest rates decrease due to capital
accumulation
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Neoclassical Growth Theory
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New Growth Theory
•Basic idea▫Discoveries of products and technologies
are the result of luck▫Discoveries lead to profit▫Competitions eliminate profit
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New Growth Theory
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New Growth TheoryPerpetual Motion Economy
Competition
Lower Profit
Innovation
Higher Profits
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Thailand economic growthExample
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Thailand’s Economic Structure
•Still an “emerging economy”•Heavily dependent on exporting
▫Over 2/3 of GDP came from exporting•Well-developed infrastructure•Free-enterprise economy•Generally pro-investment policies
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Questions
•How are we doing right now?▫1st quarter +12%▫2nd quarter -1.5%
•What’s in store for us in 3rd and 4th quarter?▫Expert still predicts +3.5% to +4%
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Real GDP Growth
Real GDP Growth:2009: -2.8%2008: +2.6%2007: +4.6%
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Next Week
•Regulation and Antitrust Policy in Globalized Economy
•Trade Theories