Understanding the Drivers of Economic Growth: Institutions, Culture, and Geography - Prof., Apuntes de Historia Económica

¡Descarga Understanding the Drivers of Economic Growth: Institutions, Culture, and Geography - Prof. y más Apuntes en PDF de Historia Económica solo en Docsity! MAGISTRAL 3: THE BUILDING BLOKCS OF ECONOMIC GROWTH WHAT CAUSES ECONOMIC GROWTH? • Fundamental causes: Institutions, Culture, Geography • Proximate causes: Human capital, Physical Capital, Total Factor Productivity (TFP) • Economic Growth TWO TYPES OF ECONOMIC GROWTH SOURCES: • Proximate source of economic growth • Physical capital leads to economic growth (i.e. Magnitogorsk in Soviet Union), and the most important question is: How do we increase physical capital? ■ Increase investment through domestic savings rate (like Chinese policy) ■ Import investment, and increase foreign debt. • Human capital (i.e. education in Harvard creates high quality professionals) which can be improved by: ■ Build schools, and subsidize education ■ Build hospitals, and subsidize health (promote sports, no- smoking…) • Total factor productivity (TFP) ■ Low TFP (i.e. Indian factories’ conditions) ■ High TFP (i.e. Car factories in Germany) How do you increase TFP? • Innovation: develop new technologies • In modern economies it is the outcome of Basic research, mostly done in universities • R&D, mostly done in firms • Patents and subisides are key • For developing countries imitation makes more sense • Foreign direct investment and importing technology is key • Efficiency: use your existing capital and technology better • Increase managerial quality, trade and expose your firms to competition • Increase domestic market competition • What causes growth? • Growth on the basis of physical and human capital is limited • TFP is key to long-run growth • Fundamental sources of economic growth • The importance of institutions ■ Regulates corruption (relation between corruption and human development) What do we mean by “institutions” ? • “Rules of the game” which impact the behaviour of individuals and organisations • Formal rules • Laws • Regulations What do institutions do? • Provide incentives for individuals and firms to engage in socially productive activities • Education