Core Macroeconomics, Hilary Term 2012
Week 1: Economic Growth
Growth theory is fascinating, but not easy. What makes it particularly challenging is that the analysis is dynamic, meaning it explicitly models how variables change over time. This makes it technically more difficult than a comparative static model like IS-LM. Concentrate first on learning well the basic Solow model with technical progress. Without losing track of the important points (e.g. the savings rate does not affect the rate of growth in the long-run), do make an effort to understand the maths. Then turn to endogenous growth and the empirical evidence.
The relevant chapters of Carlin & Soskice are 13-14, but I cannot recommend this as your
starting point. I find these chapters a difficult read. (Also, there are a handful of errors, for
example in Fig. 14.1. I believe you can download an errata corrige sheet for the book
from the publisher.)
I would start with whatever textbook you liked best in introductory macro. Mankiw, Burda & Wyplosz, De Long, Blanchard, and Jones all have good chapters on growth. The model they introduce really is the same model as in the more advanced books. The difference is simply the level of detail and range of issues covered. Also, these books use discrete time rather than continuous, but for our purposes this is not significant.
A book you probably did not encounter last year is Economic Growth by David Weil. Really it is a mix of development economics and growth. It does not offer a compact treatment of the issues we are interested in, which are spread across several different chapters. But it is full of interesting data, facts, and discussions of issues such as population growth.
Consider in particular:
Jones, Charles. Introduction to Economic Growth. New York; London : W.W. Norton, 2002 (2nd ed.). Jones is a short, very readable book. Chapters 1-3 give a quick introduction, the Solow model, human capital, and some empirics. Later chapters cover endogenous growth.
For more advanced texts, in addition to Carlin & Soskice you could consider a range of advanced macro and specialist growth theory texts.
One possibility is
Romer, David. Advanced Macroeconomics, Chs. 1-3.
Romer is good, but in parts technically difficult, esp. Ch. 2. So I would start with something else and then consult Romer in search of a different perspective, or different empirical examples.
There are growth theory texts by Barro & Sala-i-Martin, Aghion & Howitt, and Acemoglu. These are all good, but I'm not sure they offer a better treatment of the issues you need to understand at this point, and their insights may perhaps be less accessible.
Here are two suggestions for literature on growth theory and evidence:
Temple, J. "The New Growth Evidence," Journal of Economic Literature, vol. 37, no. 1 (March 1999), pp. 112-56.
Crafts, Nick, "'Post-neoclassical Endogenous Growth Theory': What Are its Policy Implications?", Oxford Review of Economic Policy, vol. 12 (1996), no. 2 pp. 30-47.
There is also useful material on the empirics of economic growth in the Handbook of Economic Growth vol. 1A. You should have access to an electronic version via the library.
The following topics are drawn from the Department's suggested questions, and
are typical of the sort of shorter essays you could expect on Part A of the exam.
If you are the first student in your group by alphabetical order (see the course
home page to check), please prepare written answers to numbers 1, 3, and 5.
The second student should answer nos. 2, 4, and 6. The third should answer nos. 2, 3, and 7.
1. Explain the Golden Rule in a Solow-Swan model with exogenous savings. Does the concept of a Golden Rule still apply if savings are endogenous? Is it more realistic to assume exogenous or endogenous savings?
2. An economy is at steady state in the Solow-Swan model. Discuss the short and long run implications of i) a rise in population growth, and ii) a decrease in the rate at which capital depreciates.
3. Using the Solow-Swan model, explain how taxation might affect steady state outcomes. Can taxation affect growth rates?
4. Explain why scale effects are important in endogenous growth models.
5. Compare and contrast Paul Romer's and Charles Jones' R&D growth models.
6. The Solow-Swan model, and most endogenous growth models, are closed economy models. How, if at all, can they help us understand a global world?
7. What are the main mechanisms at work in open economy endogenous growth models?