1. Lecture 4. SOURCES OF GROWTH
Economics 1490
THE WORLD ECONOMY:
GROWTH OR STAGNATION?
with
Professor Dale W. Jorgenson
Lecture 4. SOURCES OF GROWTH
September 12, 2017
Harvard University Department of Economics
Fall 2017

2. THE WORLD ECONOMY:
GROWTH OR STAGNATION?
A. Comparing Economies
B. U.S. Crisis and Recovery
C. European Slowdown
D. Asian Economic Miracles
E. Sustainability of Economic Growth
F. World Economic Outlook

3. A. COMPARING ECONOMIES
1. Course Description
2. The World Economy since 1990
3. Purchasing Power Parities
4. Sources of Growth
5. Globalization and Competitiveness

4. THE SOURCES OF ECONOMIC GROWTH
Comparisons among Regions and Countries
Sources of Growth in Capital Input
Information Technology and Non-Information Technology
Labor Input and Labor Quality
Total Factor Productivity

5. MODEL OF PRODUCTION: Production Possibility Frontier.
where:
I - Investment
C – Consumption
K – Capital
L – Labor
A - Total Factor Productivity (TFP)

6. SOURCES OF WORLD ECONOMIC GROWTH
Average annual growth rates, weighted by the income share.

7. THE INFORMATION AGE: Faster, Better, Cheaper!
MOORE (1998): "If the automobile industry advanced as rapidly as the semiconductor industry, a Rolls Royce would get half a million miles per gallon, and it would be cheaper to throw it away than to park it.“
INVENTION OF THE TRANSISTOR:
Development of Semiconductor Technology.
THE INTEGRATED CIRCUIT:
Memory Chips; Logic Chips.
MOORE'S LAW: The number of transistors on a chip doubles every months (Itanium processor 9300, formerly code-named Tukwila, was released on February 8, 2010, and has four cores and two billion transistors).

8. IF TRANSISTORS WERE PEOPLE

9. MOORE'S LAW AND THE FUTURE OF COMPUTING
Optional reading:
Byrne, David, Steven Oliner, and Dan Sichel "How Fast Are Semiconductor Prices Falling?" NBER Working Paper No , Cambridge, MA, NBER, April See:
Hennessey, John L., and David A. Patterson Computer Organization and Design, 5th ed. Waltham, MA: Morgan Kaufmann.
Markoff, John "IBM Scientists Find a New Way to Shrink Semiconductors," New York Times, October 1, See:

10. CAPITAL INPUT AND THE COST OF CAPITAL
PERPETUAL INVENTORY METHOD
where:
K - capital stock
I – investment
 - depreciation rate
RENTAL PRICE OF CAPITAL INPUT
  where:
  c - price of capital input
P - price of investment
r - rate of return
 - asset-specific inflation rate

11. CAPITAL INPUT AS A SOURCE OF GROWTH
INPUT SHARES OF IT:
Computers, Communications Equipment, and Software.
CAPITAL CONTRIBUTION:
IT vs. Non-IT Capital Services.
CAPITAL CONTRIBUTION BY TYPE:

12. CONTRIBUTION OF CAPITAL TO WORLD GROWTH

13. CONTRIBUTION OF CAPITAL INPUT TO WORLD GROWTH

14. CONTRIBUTION OF CAPITAL INPUT TO G7 GROWTH

15. CONTRIBUTION OF CAPITAL INPUT TO EMERGING ECONOMY GROWTH

16. WORLD ECONOMIC GROWTH
Output: World Economy, G7 Economies, Emerging Economies
Capital Input: Information Technology Versus Non-Information Technology
Labor Input: Hours Worked Versus Labor Quality
Total Factor Productivity

17. SOURCES OF WORLD ECONOMIC GROWTH
Annual percentage growth rates

18. SOURCES OF G7 ECONOMIC GROWTH
Annual percentage growth rates

19. SOURCES OF EMERGING ECONOMY GROWTH
Annual percentage growth rates

20. SOURCES OF ECONOMIC GROWTH: SUMMARY
Basic Concepts: Output, Input, and Productivity.
Comparisons among Regions and Countries
The Role of Information Technology
Capital Input, Labor Input, and Productivity
Relative Importance of Investment and Productivity

21. STRUCTURAL CHANGE IN ADVANCED ECONOMIES
Traditional Approach:
Agriculture, Manufacturing, and Services
New Approach to Manufacturing:
IT versus Non-IT Production
New Approach to Services:
Market versus Non-Market Services
Market Services:
Distribution, Finance and Business, Personal

22. DESCRIPTION OF SECTORS

23. text
PRODUCTIVITY

24. OUTPUT PRICES

25. LABOR SHARE

26. HIGH-SKILLED LABOR SHARE

27. IT CAPITAL SHARE

28. STRUCTURAL CHANGE: SUMMARY
Multi-Factor or Total Factor Productivity
Evolution of Output Prices
Compensation of Labor and High-Skilled Workers
Compensation of IT Capital Input