1. MACROECONOMICS UNDERSTANDING THE GLOBAL ECONOMY
4/23/2017
MACROECONOMICS UNDERSTANDING THE GLOBAL ECONOMY
Total Factor Productivity, Human Capital, and Technology
Copyright © 2012 John Wiley & Sons, Inc. All rights reserved.

2. Key Concepts Total Factor Productivity Human Capital
Technological Progress
Foreign Direct Investment

3. Effect of shift in production function
4/23/2017
Effect of shift in production function
Production Function, New
Production Function, Old
Real GDP
Depreciation
Investment, New
Investment, Old K0 K1
Capital

4. Production Function Shift
Increase in Output due to function shift
Increase in Labor
Increase in TFP
Increase in Output due to increase in capital
Economy moves to new steady state
As capital increases, output increases
Why does production function shift?

5. Human Capital
Skills and knowledge that accumulate over time, embodied in people
© Shutterstock Images

6. Human Capital GDP per capita =
Human Capital increases Labor Productivity

7. More human capital Real GDP Capital Output, High Human Capital
4/23/2017
More human capital
Output, High Human Capital
Output, Low Human Capital
Real GDP
Depreciation
Investment, High
Investment, Low
KLow
KHigh
Capital

8. Human Capital
Increase means more output, even at current levels of physical capital and labor
Increase means higher steady state level of output and capital
May explain cross-country growth differentials

9. Education and Economic growth

10. Contribution to Growth
Contribution of Education to Annual Output Growth, 1950 – 1990

11. How to increase human capital?
Educational attainment
Expenditures on education
Allocation of resources
Level of education
Cost of education

12. Schooling Differences Across Countries
Years of Education by level

13. Percentage of students completing the final year of primary school
Source: World Bank Millennium Development Goals

14. Education Spending and Attainment

15. Determinants of Efficient Education Expenditure.

16. Review
Cross-country differentials in per capita output are substantial
Role of physical capital
Role of human capital
Significant fraction of differential is unexplained – we call this “TFP”
Other elements of TFP

17. TFP important

18. Institutions Property Rights Regulatory Institutions
Macroeconomic Stabilization
Social Insurance
Conflict Management
Political Rights

19. World Bank Indicators Voice and accountability
4/23/2017
World Bank Indicators
Voice and accountability
Political stability and lack of violence
Government effectiveness
Regulation quality
Rule of law
Corruption
Link is the the world bank indicators page, source of data on next two slides.

20. Governance and GDP

21. Corruption Perceptions Index (higher score = less corrupt)
Country
Score
Denmark
9.3
China
3.5
N. Zealand
Thailand
Singapore
Greece
Sweden
9.2
India
3.3
Canada
8.9
Mexico
3.1
Netherlands
8.8
Argentina
2.9
Australia
8.7
Indonesia
2.8
Hong Kong
8.4
Ethiopia
2.7
Germany
7.9
Vietnam
Japan
7.8
Nigeria
2.4 UK
7.6
Ukraine
Chile
7.2
Pakistan
2.3 US
7.1
Kenya
2.1
France
6.8
Russia
Spain
6.1
Venezuela
2.0
Poland
5.3
Sudan
1.6
S. Africa
4.5
Iraq
1.5
Malaysia
4.4
Afghanistan
1.4
Italy
3.9
Myanmar
Brazil
3.7
Somalia
1.1

22. Bribe Payers Index (higher figure = less likely to bribe)
Country
Score
Belgium
8.8
Spain
7.9
Canada
Hong Kong
7.6
Netherlands
8.7
South Africa
7.5
Switzerland
South Korea
Germany
8.6
Taiwan UK
Italy
7.4
Japan
Brazil
Australia
8.5
India
6.8
France
8.1
Mexico
6.6
Singapore
China
6.5 US
Russia
5.9

23. Rent Seeking
Activity in which value-added produced by one person is taken by another
Examples
Water subsidies
Sugar tariffs
Insider contracts or trading
Concerns
Absorbs resources (labor and capital)
Acts as a tax
Rent seeking crowds out production

24. R & D Growth can be sustained through technological progress
Role of Research and Development in promoting technological progress
Example of South Korea
© Shutterstock Images

25. South Korean R&D as a % of GDP
As countries approach their steady state, R&D becomes more important.

26. Rich countries spend more on R&D

27. Foreign Direct Investment
Investment by foreign firms in an economy
Encourages capital accumulation and technology transfer
Can facilitate convergence among countries

28. Foreign Direct Investment (FDI)
Net Foreign Direct Investment, (billions of US $)

29. Summary Effect of increases in TFP
Effect of human capital accumulation
Other influences on growth
Institutions
Technological Progress
FDI
Copyright © 2012 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained therein.