...economists emphasise so much the role of capital accumulation in the development process? Capital is a factor of production that can be accumulated through investment. It can be split into at least two groups, physical capital and human capital. Physical capital includes the value of all existing machines, equipment, buildings and infrastructures. Human capital involves the value of productive investments embodied in the labour force. High capital per worker is likely to reflect high living standards and I will discuss strengths and weaknesses of this argument, and its role for developing economies using the neo-classical growth model. Neoclassical Growth Model The neo-classical growth model attempts to explain long-run economic growth by looking at capital accumulation, labour or population growth, and increases in productivity. We assume savings are based on a constant fraction of total income (Y). Yt – Ct = St = sYt Where Y is income in year t, C is consumption, S is the gross aggregate savings, s is the ratio of saving to GDP or the gross savings rate. There are two relationships between output and capital. Firstly, the level of capital stock determines the amount of output produced; also the amount of output determines the level of saving and in turn, the capital accumulation over time. We assume capital is subject to decreasing returns so when the capital per worker is already high, the impact on output of the last unit of capital accumulated will always be less than...
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...The accumulation of capital is the gathering or amassing of objects of value as judged by one’s perceived reproductive interest group, the increase in wealth through, concentration, or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money (whealth in the form of profit, rent, interest, royalties, capital may also be seen as a form of capital, investment in one’s personal abilities, such as through education, to improve their function and therefore increase their income potential in a market economy. Poverty is the inability of getting choices and opportunities of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and cloth a family, not having a school or clinic to go to not earn one’s living, not having acces to credit. It means insecurity powerlessness and exclusion of individuals house holds and communities. A developing country, also called a less developed country (LDC) is a nation with a lower living standard, underdeveloped industrial base and low human development index (HDI), relative to other countries. The development of a country is measured with statistical indexes such as income per capital (per person), (gross domestic product), life expectancy, the rate of literacy (ignoring reading addiction). Developing countries like Tanzania, Kenya, Ethiopia and others are, in general countries that have not achieved a significant degree of industrialization...
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...still could live (buy necessities and living goods). Yet if we compare to the poorest country, this figure does not show a big gap in per capita income (where in poorest country, they do not have growth in per capita income or maybe little growth). 2. A. From the article “The Myth of Asia’s Miracle” written by Paul Krugman, the leading countries in Asia achieved a rapid growth in per capita income and GPD as the feedback of a rise in production input: capital, labour, and knowledge. Also in Japan they achieved the rapid growth by an increase in its efficiency of their input (noted by Ā). From this information, the model of production could be suggested as Yt = F(Kt , Lt) = Ā Ktα Lt1-α Kt+1 = It – đKt This first model was suggested from Sollow growth model, utilising capital (Kt) and Labour force (Lt).Moreover, the capital accumulation process can be modelled as the second equation where the change in capital is the conclusion of the year capital investment deducted by the depreciation of the existing capital. To conclude the model with 2/3 in the share of...
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...ECW2730 Assignment 1: Population Growth, Real GDP Per Capita and the Solow Model For this assignment, twenty developing countries with high population growth in the 1960s or at the beginning of the current century are selected, along with another twenty developing countries with lower population growth in recent years. Table 1 and Table 2 shows the selected countries’ real GDP per capita, as well as their population growth rates between 1960-2012, whereby the differences are computed by averaging out the population growth rates on a ten-year basis, except for the last fraction which is on a 13-year basis, that is, between year 2000 to 2012. For instance, the population in Romania in 1960 and 1969 is 18,406,900 and 20,009,140. The growth rate is calculated by the formula: Population Growth Rate= V Present-V PastV PastN ×100 where V Present is present or future value, V Past is past or present value and N equivalent to the number of years (Parker, 2002). Hence the growth rate of 1960-1969 is calculated as follows: Population Growth Rate 1960-1969= 20,009,140-18,406,900V Past10 = 0.87% The calculation proceeds with the 1970-1979, 1980-1989, 1990-1999, and lastly, 2000-2012 population growth rates, and final figure taken is the average of these 5 rates. Table 1 – Population Growth Rate (1960-2012) and Real GDP Per Capita in 2012 (USD) of 20 Developing Countries with high population growth rates in the early century (Source adopted from IndexMundi, 2013 Table 2...
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...Blaut... CH. 4 We now know: - Capitalism was developing evenly throughout Africa, Europe and Asia before 1492. - This process was called by Blaut: “Proto-capitalism.” So capitalism does not appear out of nowhere. It shifted its center from Indian Ocean to Europe = continuous process. Industrial revolution started later: symbolically situated in 1688 (overthrow of King James II in England by Parliamentary group) So... How did Capitalism develop more in Europe after 1492? - This is the main question of the chapter. Why did Europe discover America? Myth of adventuresome superiority in Europe. - Based on internal characteristics of Europe and giving no credit to non-Europeans. But they were trading in maritime centers just like everyone else. Technology superiority of Europe? Others had traveled long distances. Inventions were criss-crossing and Europeans did not have technological superiority in navigation. So why...??? Special progress in Europe? Nop... Europe in 1492 was “sluggish”. - Economic growth was slow and most likely negative. - Urbanization process was slow. In 1 or 2 decades progress and economic growth started to rise. - - Why??? So Why??? Geographic location. - Europe was simply closer to America and this was an advantage. Sailing conditions were better: winds were favorable. West-African traders...
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...countries while keeping the growth of population and capital accumulation constant. The authors states that two variables, that is, rates of saving and population growth of a country, can be used to determine the country’s steady-state level of income per capita. This model predicts that higher the rate of population growth of a country, poorer is the country and on the other hand, higher the rate of saving, richer is the country (Edward Gamber, 2006). Overall, the findings reported in this paper shows doubt on the recent style among the economists to abandon the Solow model growth in the favor of endogenous-growth models which assume steady or growing returns to scale in capital. The author argues about the fact that the predictions of the Solow model are firstly to an approximation, consistent with the evidence and by examining the current data for a large set of countries we also find that saving and population growth affect income the same way the Solow model predicted. Moreover, more than half of the country variation in income per capital can be explained by these two variables alone. And also it can be added that even the Solow model can predict the direction of effects of savings and population growth, it is unable to predict the magnitude of the same. Part B The pivotal changes that must be made to the Solow model are inclusion of the accumulation of human as well as physical capital. The exclusion of the “human capital” from the textbook version of the Solow model can...
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...The Finance & Accumulation Protocol to achieve financial independence -The Basics of Money and its accumulation- "You will never achieve wealth in spending money, wealth can only be achieved in saving money." -Helmut Ament- Why do we Fail with Money? We fail with Money and we don’t build wealth and financial security because we make a few key, consistent errors. These are common errors that are caused by our mental “hard-‐wiring” and our inability to calculate the long-term effects of our decisions. If you learn About these errors and you overcome them, you can take control of your financial life and Your financial success. If you don’t learn about these errors, you’ll keep making them, and you’ll keep going down a path of having less success with money, less control of your life, and less of a feeling of security and safety for yourself and others. If you want to get control of your financial life... and get control of your ENTIRE life... then you must educate yourself and learn how to do it. No one is going to do it for you. A Lot of people think that money is something you dont talk about, something bad. Some people think that people who have money are “bad people” and people who are poor are “good people.” Regardless of how you feel about money, what you think money is, or whether or not you think that people who have money are good or bad, it’s likely that you DO FEEL one thing: Most people feel like... Money controles their lives ...
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...capita in directions predicted by the Solow model. – 50% of variation in GDP per capita can be predicted by the Solow model. • While qualitative predictions are confirmed, quantitative effects of savings and population growth are too large to be consistent with standard Solow growth theory. 1 • An augmented version of the Solow growth model that allows for human capital accumulation can explain the data however. – Adding human capital explains why coefficients on savings and population growth are upward biased – human capital is an omitted variable which is positively correlated with savings. – When schooling is included in the regression as a measure of human capital, MRW find that ∗ Coefficient on savings and population growth are now of the correct magnitude for the augmented model. ∗ The augmented Solow model now explains 80% of the variation in cross-country living standards. 2 2 • Model: Population and technology grow at constant exogenous rates: L(t) = L(0) exp(nt) A(t) = A(0) exp(gt) Cobb-Douglas production Y (t) = K(t)α (A(t)L(t))1−α Constant savings rate: I(t) = S(t) = sY (t) Capital accumulation dk = sy(t) − (n + g + δ)k(t) dt where k(t) = K(t) A(t)L(t) Y (t) y(t) = = k(t)α A(t)L(t) • which implies that dk = s (k(t))α − (n + g + δ)k(t) dt 3 3 • Steady-state: In steady state dk =0 dt which implies 1/(1−α) s ∗ k = n+g+δ • Labor productivity: Y (t) = A(t) (k ∗)α L(t) • Taking logs we have log(Y (t)/L(t)) = log(A(0))+gt+ α...
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...The Issues of National Importance Based on Current Events 1. Nature And Animal Conservation Preserving species and their habitats is important for ecosystems to self-sustain themselves. Yet, the pressures to destroy habitat for logging, illegal hunting, and other challenges are making conservation a struggle. 2. Tobacco It is well know that tobacco smoking kills millions. But it also exacerbates poverty, contributes to world hunger by diverting prime land away from food production, damages the environment and reduces economic productivity. Second hand smoking also affects other people’s lives. Despite many attempts to prevent it, a global tobacco control treaty became international law in 2005. However, challenges still remain as tobacco companies try to hit back, for example, by targeting developing nations, increasing advertising at children and women, attempting to undermine global treaties and influence trade talks, etc. 3. COP19—Warsaw Climate Conference Posted Monday, December 02, 2013. An overview of the Climate Change Conference (also known as COP 19), held in Warsaw, Poland in November 2013. Predictably and sadly, the same issues have resurfaced: West stalling on doing anything, lack of funding, disagreement on priorities, etc. Climate Change And Global Warming Introduction Last updated Monday, November 11, 2013. The climate is changing. The earth is warming up, and there is now overwhelming scientific consensus that it is happening, and...
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...including possible externalities that contribute to the growth of an economy that we can't just stick with a model and leave every other one aside. We can possibly even take correlating variables and run regressions all day and see whether they positively or negatively contribute to an economy's growth, but even then there will still be outliers in our regression model. At the end of the day, regardless of the rate of an economy's growth we all strive towards efficiency and progress. Solow's model, often called the Neo-classical Growth Model, outlined how a steady economic growth rate would be accomplished with labor, capital, and technology. The model took on a production function with varying amounts of labor and capital and projected that an equilibrium state could be reached. It also emphasized that technology change, population growth, and even capital...
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...to save. This makes it impossible for them to generate sufficient funds for unexpected expenses. This then can damage their living standards further if homes, livestock and possessions are lost. This restriction to make free economic and social choices, would, in Todaros view, indicate a lack of economic development. Furthermore, without saving it restricts developing economies from business and capital investment as with no one saving there is no money to loan out to fund investment and expansion for businesses to improve their capital and thus improving the standard of living in impoverished areas through increased wages and greater access to life sustaining goods such as food and water. Capital investment is important as is our productivity with it as the Harrod-Domar model looks at savings and productivity e.g. capital to explain an economies growth. Finally, capital investment if vital for capital accumulation such as schools and office blocks. Developing countries don’t have much capital acquired due to the inability to save and invest. By increasing their accumulation of capital it can help them to urbanise and...
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...income. This increased saving, then, can be profitably invested by the entrepreneurial class in productive channels, thereby raising the level of employment, output and income. Thus, the rationale of a policy of "development through inflation" is that inflation raises the ratio of profits to aggregate community income (or national income) and the process continues till profits increase to the extent that entrepreneurs can finance the higher rate of investment from the saving out of their profits without any further recourse to credit, i.e., monetary expansion. Keynes favours mild inflation on the ground that it tends to stimulate business optimism through rising prices, resulting in high profit expectation (a high marginal efficiency of capital) which stimulates further investments, employment, output and income. Another argument advanced in support of the view that inflation stimulates development is that creation of new money (i.e., printing more money) by the government in view of deficit financing, though inflationary, is an important...
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...This book points out that wealth inequality inheres in the 21 century capitalism. The author, Thomas Piketty, says the polarization of wealth has become more serious since the return on capital is bigger than the economic growth rate. Simply put, the speed at which money makes money is much greater than the speed at which labor makes money. As a result, the faster accumulation of capital is the main culprit of inequality. South Korea is no exception. Despite of economic growth, real wage is getting smaller with inflation. It's because wages are not keeping up with inflation. Moreover, real wage has been recently far below labor productivity in Korea. That means the quality of workers' lives didn't get any better. Why doesn't firm performance lead to worker's compensation? Where has the rest of the income gone? Most of it comes to the company, and it is called as capital income. It is not that difficult to imagine how dangerous this problem would be, when it persists and gets worse. Those who buy products are not entrepreneurs, but customers. If customers do not have enough money to purchase things, companies would not earn money too. So, it could destroy companies in the end. That is, focusing too much on growth and ignoring distribution paradoxically will hurt growth itself. Therefore, the author says that government has to do something to reduce the level of inequality. Thomas Piketty suggests strengthening progressive tax. But I have some doubts about it. First...
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...experience different growth rates, and (II) why we might expect poor countries to grow more quickly than rich countries. There is a huge diversity of how economies expand. Some countries manage to grow at a remarkably fast pace, while others suffer failures almost every time they attempt to improve. In order to explain why countries experience different growth rates and also why poor countries experience growth at a faster rate than rich countries one will have to take a look at the economic theories for this aspect. Firstly, economic growth can be defined as the increase of goods and services, which an economy produces over time. The first theory to go through is the traditional growth theory, which concentrates on the accumulation of physical capital, which explains why some countries are much wealthier now than a century ago. That only scratches the surface, however, as modern economies differentiate from those a century ago, due to the advance in technology resulting in better infrastructure and machinery, producing better goods more efficiently. The neo-classical model of Solow was unable to explain this, treating it as exogenous. ( Sérgio Rebelo, “Why Do Growth Rates Differ?”) Thus the endogenous theory came in to shine light on the matter. It originated from the studies of Paul Romer, who sought to understand the circumstances which could result in the economy displaying sustainable growth, despite the lack of any exogenous increase in productivity. ( Sérgio Rebelo...
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...level of income? Explain. Life expectancy is positively correlated with the income level. This does not imply that better health conditions are the cause of a higher level of income, because correlation does not imply causality. For example, the positively correlation between life expectancy and the income level may because a) better health conditions lead to higher income, or b) higher income lead to better health conditions, or c) something else cause both better health conditions and higher income. 2) According to basic growth models, do better health conditions contribute to higher income levels? Explain. Yes. Better health conditions means higher accumulation of human capital in an economy. According to the endogenous growth models, human capital is one type of capital. In basic growth models, capital accumulation is one of the driving forces of economic growth. As a result, according to basic growth models, better health conditions would lead to higher income levels. 3) Will health conditions be affected by income levels? Contribute a story and explain. (There is no single answer to this question.) Yes. For example, malnutrition is popular in some developing countries. The poor do not eat well because they lack money. This...
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